40-F

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 40-F

(Check One)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
	OR
þ	ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004 Commission file number 0-12049

Shell Canada Limited

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English (if applicable))

Canada

(Province or other jurisdiction of incorporation or organization)

2911

(Primary Standard Industrial Classification Code Number (if applicable))

98-0397084

(I.R.S. Employer Identification Number (if applicable))

400 – 4th Avenue S.W., Calgary, Alberta, Canada T2P 0J4, (403) 691-3111

(Address and telephone number of Registrant’s principal executive offices)

Peter S. Wilson, Esq., Cravath, Swaine & Moore LLP, 825 Eighth Avenue,
New York, New York 10019, (212) 474-1000

(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
  Name of each exchange
on which registered

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Shares

(Title of Class)

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

(Title of Class)

For annual reports, indicate by check mark the information filed with this form:

þ  Annual information form þ  Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

100 4% Cumulative Redeemable Preference Shares
275,242,562 Common Shares

Indicate by check mark whether the Registrant by filing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). If “Yes” is marked, indicate the file number assigned to the Registrant in connection with such Rule.

Yes  o 82-                No  þ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ No  o

TABLE OF CONTENTS

Consent of PricewaterhouseCoopers LLP

Consent of Chief Reservoir Engineer

Consent of Chief Mining Engineer

Certification of CEO Pursuant to Section 302

Certification of CFO Pursuant to Section 302

Certification of CEO and CFO pursuant to Section 906

2004 Annual Information Form

Shell Canada Limited 2004 Annual Report

Notice of Meeting, Proxy Circular and Proxy

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the “Evaluation Date”), Shell Canada Limited conducted an evaluation (under the supervision and with the participation of Shell Canada Limited’s management, including the chief executive officer and chief financial officer), pursuant to Rule 13a-15 promulgated under the Exchange Act, of the effectiveness of the design and operation of Shell Canada Limited’s disclosure controls and procedures. Based on this evaluation, Shell Canada Limited’s chief executive officer and chief financial officer concluded that as of the Evaluation Date such disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by Shell Canada Limited in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”).

UNDERTAKING

Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

Registrant: Shell Canada Limited
By:	/s/ Clive Mather
	Clive Mather, President and Chief Executive Officer

Date: March 10, 2005

EXHIBIT INDEX

Exhibit	Description of Exhibit
23.A	Consent of PricewaterhouseCoopers LLP.
23.B	Consent of Bruce Roberts, Chief Reservoir Engineer.
23.C	Consent of Allen G. Vanderputten, Chief Mining Engineer.
31.A	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.B	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.A	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.A	2004 Annual Information Form for the year ended December 31, 2004.
99.B	Shell Canada Limited 2004 Annual Report (including annual audited consolidated financial statements).
99.C	Notice of Annual and Special Meeting of Holders of Common Shares and 4% Cumulative Redeemable Preference Shares and Management Proxy Circular dated March 10, 2005, including the Form of Proxy.

EX-23.A

EXHIBIT 23.A

Consent of Accountants

We hereby consent to the incorporation by reference in this annual report on Form 40-F of Shell Canada Limited of (i) our report dated January 31, 2005 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders; (ii) our report dated January 31, 2005 relating to the supplemental note, which appears in Schedule VI of the Annual Information Form; and (iii) our report dated January 31, 2005 relating to Note 1 to the consolidated financial statements, which appears in Schedule VI of the Annual Information Form.

/s/ PricewaterhouseCoopers LLP 

PricewaterhouseCoopers LLP
 
Chartered Accountants
 
Calgary, Alberta
January 31, 2005

EX-23.B

EXHIBIT 23.B

Consent of Chief Reservoir Engineer

I hereby consent to the reference to and use of my reserves evaluation report dated January 31, 2005 by Shell Canada Limited (the “Corporation”) in its annual report on Form 40-F and Annual Information Form, each dated March 10, 2005, with respect to the Corporation’s reserves data and related information for the year ended December 31, 2004.

/s/ Bruce Roberts 

Bruce Roberts
Chief Reservoir Engineer
 
January 31, 2005

EX-23.C

EXHIBIT 23.C

Consent of Chief Mining Engineer

I hereby consent to the reference to and use of my reserves evaluation report dated January 31, 2005 by Shell Canada Limited (the “Corporation”) in its annual report on Form 40-F and Annual Information Form, each dated March 10, 2005, with respect to the Corporation’s reserves data and related information for the year ended December 31, 2004.

/s/ Allen G. Vanderputten 

Allen G. Vanderputten
Chief Mining Engineer
 
January 31, 2005

EX-31.A

EXHIBIT 31.A

CEO 302 Certification

     I, Clive Mather, certify that:

     1.   I have reviewed this annual report on Form 40-F of Shell Canada Limited;

     2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

     4.   The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

     5.   The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 10, 2005

/s/ Clive Mather 

Clive Mather
President and Chief Executive Officer

EX-31.B

EXHIBIT 31.B

CFO 302 Certification

     I, Cathy L. Williams, certify that:

     1.   I have reviewed this annual report on Form 40-F of Shell Canada Limited;

     2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

     4.   The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (c) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

     5.   The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: March 10, 2005

/s/ Cathy L. Williams 

Cathy L. Williams
Chief Financial Officer

EX-32.A

EXHIBIT 32.A

906 Certification

Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 

     In connection with the annual report on Form 40-F of Shell Canada Limited, a Canadian corporation (the “Company”), for the period ending December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of such officer’s knowledge and belief, that:

     1)   the Report fully complies, in all material respects, with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2)   the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

     The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used or relied upon for any other purpose.

Dated: March 10, 2005	/s/ Clive Mather
	Clive Mather President and Chief Executive Officer
Dated: March 10, 2005	/s/ Cathy L. Williams
	Cathy L. Williams Chief Financial Officer

EX-99.A

2004 ANNUAL INFORMATION FORM
For the year ended December 31, 2004

March 10, 2005
 

 
 

Annual Information Form

Attached to this Annual Information Form is the Annual Report to shareholders for the year ended December 31, 2004 of Shell Canada Limited (Annual Report) and the Management Proxy Circular of the Corporation dated March 10, 2005 (Proxy Circular). Copies of these documents can also be found on the Corporation’s website at www.shell.ca and under Shell Canada’s profile at www.sedar.com.

Unless the contents indicate otherwise, the terms “Shell”, “Shell Canada”, “Shell Canada Limited”, “Corporation” and “Company” are used interchangeably in this Annual Information Form to refer to Shell Canada Limited and its consolidated subsidiaries.

Shell Canada Limited’s Report of the Audit Committee and information pertaining to the appointment of auditors appears on pages 29 to 31 and page 32, respectively, of the Proxy Circular. The information contained therein, together with those sections of the Annual Report and Proxy Circular referenced herein, is specifically incorporated by reference into this Annual Information Form. Any sections of the Annual Report or Proxy Circular not referenced herein do not form part of this Annual Information Form.

INDEX

Corporate Structure	1
Name and Incorporation	1
Intercorporate Relationships	1
Capital Structure	1
General Development of the Business	2
Three-Year History	2
Trends	2
Narrative Description of the Business	3
Exploration & Production	3
Oil Sands	8
Oil Products	10
Competitive Conditions	11
Research and Development	12
Environmental Protection	12
Number of Employees	13
Foreign Operations	13
Selected Consolidated Financial Information	14
Annual Information	14
Dividends	15
United States Generally Accepted Accounting Principles	15
Management’s Discussion and Analysis	16
Off-Balance Sheet Arrangements	16
Market for Securities and Transfer Agent	16
Directors and Officers	17
Majority Shareholder	18
Additional Information	19
Schedule I Oil and Gas Disclosure	20
Schedule II Oil Sands Mining Disclosure	22
Schedule III Report on Oil and Gas Reserves Data by Qualified Reserves Evaluator	27
Schedule IV Report on Minable Bitumen Reserves Data by Qualified Reserves Evaluator	29
Schedule V Report of Management and Directors on Oil and Gas Disclosure	30
Schedule VI United States Generally Accepted Accounting Principles and Reporting Practices	32
Auditors’ Reports	34

Corporate Structure

NAME AND INCORPORATION

Shell Canada Limited was incorporated under the laws of Canada in 1925 as the successor to The Shell Company of Canada, Limited, which was incorporated in 1911. Supplementary Letters Patent subdividing the Class “A” and Class “B” common shares on a three-for-one basis were effective May 14, 1973. Shell Canada was continued under the Canada Business Corporations Act on May 1, 1978. The Corporation was amalgamated with a wholly owned subsidiary, Shell Canada Resources Limited by Articles of Amalgamation dated January 1, 1986. Articles of Amendment effecting the conversion of the Class “B” common shares to Class “A” common shares on a four-for-one basis and deleting the Series “A” preferred shares were effective June 1, 1989. Articles of Amendment splitting the Class “A” common shares on a three-for-one basis were effective May 20, 1997. The Corporation amalgamated with a wholly owned subsidiary, 177487 Canada Ltd., effective July 1, 1998. An Amendment to the Articles of the Corporation to effect a redesignation of the Class “A” common shares of the Corporation to common shares and to delete all references to Class “B” common shares was approved by special resolution of the shareholders at their Annual and Special Meeting held April 26, 2000. Articles of Amendment effecting the changes were issued May 2, 2000. Effective May 18, 2000, a restated Certificate of Incorporation was issued consolidating prior amendments. The head and registered office of the Corporation is located at 400 – 4th Avenue S.W., Calgary, Alberta, T2P 0J4.

INTERCORPORATE RELATIONSHIPS

The Corporation’s principal subsidiary, Shell Canada Products Limited, which is wholly owned and was incorporated under the Canada Business Corporations Act in 1982, began carrying on business in 1986. Until December 31, 2000, it was engaged in the manufacture, distribution and marketing of refined petroleum products.

Effective January 1, 2001, the business of Shell Canada Products Limited was transferred to Shell Canada Products, a partnership now governed by the laws of Alberta. Shell Canada Products Limited owns 99.99 per cent of the partnership units and is the managing partner. The balance of the partnership units are held by a wholly owned subsidiary of the Corporation.

The Corporation’s other operating subsidiaries, in the aggregate, represent less than 20 per cent of Shell’s total consolidated revenues or total consolidated assets.

CAPITAL STRUCTURE

The Corporation is authorized to issue an unlimited number of common shares, an unlimited number of four per cent cumulative redeemable preference shares and an unlimited number of preferred shares.

CORPORATE STRUCTURE      1  

General Development of the Business

Shell Canada, one of the largest integrated petroleum companies in Canada, operates principally in three industry segments: Resources, renamed in 2004 as Exploration & Production (E&P), Oil Sands and Oil Products. The E&P segment comprises exploration, production and marketing activities for natural gas, natural gas liquids, in situ bitumen and sulphur. Shell Canada is a major producer of natural gas liquids, a large producer of natural gas and the largest producer of sulphur in Canada. The Oil Sands segment extracts bitumen from Lease 13 in the Athabasca region of northern Alberta and processes the bitumen into a range of synthetic crude oils. The Oil Products segment includes the manufacture, distribution and marketing of refined petroleum products.

THREE-YEAR HISTORY

2002¹   Shell Canada reported earnings of $555 million or $2.01 per common share compared with earnings of $1,004 million or $3.65 per share in 2001. The return on average capital employed (ROACE) of 10.1 per cent was a reduction from the previous year’s exceptional high of 21.5 per cent. E&P earnings in 2002 were $382 million compared with $595 million in 2001. Lower prices for natural gas and natural gas liquids together with higher unit costs and a $41 million after-tax write-off for the deeper section of the Onondaga exploration well contributed to the decline in earnings. E&P capital and exploration expenditures were $389 million compared with $366 million in 2001. Oil Products earnings were $197 million in 2002, down from the record $400 million in 2001. The decrease in earnings was due mainly to lower refinery and marketing margins, increased operating costs and reduced throughputs. Refinery operating costs were higher than in the previous year due to twice the normal level of turnaround activity and related reductions in refinery utilization. Oil Products capital expenditures were $433 million, including $186 million for Oil Sands-related Scotford modifications. Oil Sands started operations at the very end of 2002 and reported a loss of $5 million due primarily to capital taxes on the related assets. The Athabasca Oil Sands Project (AOSP) started up in December 2002 with the first production and sale of bitumen from the Muskeg River Mine.

2003¹   Shell Canada reported earnings of $810 million or $2.95 per common share compared with earnings of $555 million or $2.01 per share in 2002. The ROACE of 13.1 per cent was a slight improvement over the previous year’s 10.1 per cent. Excluding the impact of Oil Sands capital, ROACE was a strong 25.5 per cent. E&P earnings in 2003 were $619 million compared with $382 million in 2002. Strong commodity prices and a gain of $32 million from the revaluation of future income taxes helped E&P achieve its best ever year in earnings. E&P capital and exploration expenditures were $431 million compared with $389 million in 2002. Oil Products earnings were $344 million in 2003, up from $197 million in 2002. The increase in earnings was due mainly to improved refinery margins. High transaction, pension and turnaround costs continued to put pressure on financial performance in 2003. Oil Products capital expenditures were $194 million compared with $433 million in 2002. Oil Sands reported positive earnings of $31 million during the last half of 2003, but a loss of production from a fire that occurred in January and the expensing of start-up costs led to a loss for the full year of $142 million. By the fourth quarter of 2003, bitumen production averaged 130,000 barrels per day or 84 per cent of design capacity. Oil Sands capital expenditures were $123 million compared with $1,460 million in 2002.

2004   For highlights of 2004, reference is made to the business sections in the Management’s Discussion and Analysis section of the Annual Report found on pages 9 to 46.

TRENDS

2005   For a discussion of the significant initiatives planned by the Company for 2005, reference is made to the business sections in the Management’s Discussion and Analysis section of the Annual Report on pages 9 to 46.

1  2002 and 2003 earnings have been restated to reflect the retroactive adoption of the new Canadian accounting standard relating to asset retirement obligations.

2        GENERAL DEVELOPMENT OF THE BUSINESS

Narrative Description of the Business

EXPLORATION & PRODUCTION

Shell Canada has been engaged in the exploration and production of crude oil and natural gas in Canada since 1939. From 1976 to 1985, Shell Canada’s exploration and production operations were managed and operated through a wholly owned subsidiary of the Corporation, Shell Canada Resources Limited (Shell Resources). Shell Canada Limited was amalgamated with Shell Resources on January 1, 1986, and the Resources business of Shell Canada, renamed in 2004 as Exploration & Production (E&P), became part of the operations of Shell Canada Limited. In 1999, Shell Canada sold its conventional crude oil producing interests.

The Corporation’s conventional oil and gas reserves disclosure and related information have been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101), which permits the Corporation to present its reserve disclosure in accordance with the applicable requirements of the United States Financial Accounting Standards Board (FASB) and the United States Securities and Exchange Commission (SEC). This disclosure differs from the corresponding information required by NI 51-101. If Shell Canada had not received the decision, it would be required to disclose proved plus probable oil and gas reserves estimates based on forecasted prices and costs and information relating to future net revenue using forecasted prices and costs.

Additional information related to E&P may be found on pages 18 to 25 of the Annual Report and in Schedule I and Schedule III on pages 20 and 21 and pages 27 and 28, respectively, of this Annual Information Form.

Principal Products

Shell Canada’s E&P segment is a major producer of natural gas, natural gas liquids, in situ bitumen and sulphur in Canada.

Principal Markets and Methods of Distribution

Natural Gas    Shell Canada sells the majority of its Western Canada natural gas production to 3095381 Nova Scotia Company, an affiliated company that operates as part of the Royal Dutch/ Shell Group’s global trading organization, at Alberta market-based prices (AECO reference price).

The Sable Offshore Energy Project (SOEP) started up late in December 1999. It is owned jointly by Shell Canada, ExxonMobil Canada Properties, Imperial Oil Resources, Pengrowth Corporation and Mosbacher Operating Ltd. Shell’s share of natural gas production from SOEP is 31.3 per cent and is marketed both directly to end use customers in North America and to an affiliate, Coral Energy Canada Inc.

Natural Gas Liquids   Shell Canada is a major producer and marketer of natural gas liquids (ethane, propane, butane and condensate) in Canada. Ethane is used primarily as a petrochemical feedstock and is moved by pipelines to markets in Alberta. The major markets for propane are the transportation, space-heating, petrochemical and agricultural sectors. Butane is used primarily as a direct gasoline additive and in the manufacturing of oxygenated gasoline additives. Condensate is used mainly as a diluent for heavy crude oil and as a refinery feedstock.

Shell Canada has investments in shared infrastructure near major market centres in Edmonton, Alberta; Sarnia, Ontario; and Point Tupper, Nova Scotia; for the processing, storage and delivery of natural gas liquids to meet customer requirements.

Natural gas liquids production from these facilities is sold to both Canadian and U.S. markets. SOEP condensate production is shipped by marine tanker to the marketplace.

NARRATIVE DESCRIPTION OF THE BUSINESS      3  

Bitumen   Shell Canada sells its in situ bitumen production from the Peace River facilities to both Canadian and U.S. markets. Production is shipped through a number of pipelines from Shell’s producing location to the receiving markets.

Sulphur   Shell Canada is one of the world’s largest sulphur producers and marketers with about 45 per cent of Canadian sulphur sales and over 16 per cent of world traded sulphur. Shell markets sulphur primarily to export markets. Market growth in China in recent years offset significantly reduced volumes being shipped to the United States. Most of Shell’s sulphur customers are in the fertilizer industry. Sulphur is shipped by rail to the United States primarily in liquid form and, for markets outside North America, it is moved in solid form by rail to the Port of Vancouver, British Columbia, for shipping in dry bulk cargo vessels to overseas markets.

Revenues by Product

Reference is made to the “Segmented Information” note to the consolidated financial statements on pages 56 to 59 of the Annual Report.

The following tables set out the percentage of revenue by customer:

Natural Gas (%)	2004		2003		2002
Sales to third parties		13		14		18
Sales to related parties		87		86		82
Total natural gas sales		100		100		100

Natural Gas Liquids (%)	2004		2003		2002
Sales to third parties		96		98		97
Sales to related parties		4		2		3
Total natural gas liquids sales		100		100		100

Source and Availability of Raw Materials

The source and availability of hydrocarbon reserves depends upon the success of Shell’s exploration and development programs. Shell’s development programs are focused in three areas: the existing deep foothills gas fields in Western Canada, the Peace River bitumen deposit, and the gas fields near Sable Island, offshore Nova Scotia. Shell’s exploration program continues to focus on exploring for new reserves in the Western Canada Sedimentary Basin (WCSB), and maintains exploration interests off the East and West coasts of Canada and in the Mackenzie Delta. In December 2004, the Company announced a major discovery in central Alberta, the Tay River exploration well, one of the largest gas discoveries in Western Canada in recent years. After disappointing exploration results in offshore Nova Scotia, the Company is reassessing the opportunities in this area.

Seasonality

Historically, natural gas sales prices have been higher in the first and fourth quarters of the year as a result of increased heating demand during the winter months. However, in 2004 prices for natural gas remained strong throughout the first three quarters, supported by record high crude oil prices. In the fourth quarter, with continued strong oil prices and in anticipation of winter demand, natural gas prices increased in line with historical patterns.

Drilling Activity

Reference is made to the “Exploration and Development Wells Drilled” table and as well the “Productive Wells” table on page 73 of the Annual Report.

4        NARRATIVE DESCRIPTION OF THE BUSINESS

Present Activity

Reference is made to the “Exploration and Development Wells Drilled” table on page 73 of the Annual Report.

Location of Production

Shell Canada operates and has substantial interests in natural gas plants in Alberta and Nova Scotia, which process approximately 79 per cent of its current sales volumes. The remaining sales volumes are processed in other natural gas processing plants in Alberta, in which Shell Canada has varying interests or to which it has access under long-term processing agreements. The following table sets out the capacity and utilization of Shell Canada’s major plants:

            Gas Plants

			Current		Utilization
	Shell Canada’s		Sales Gas		of Current
	Interest		Capacity 1		Capacity 2
	(%)		(millions of cubic feet per day)		(%)
Waterton		100		165		60
Jumping Pound		100		151		72
Burnt Timber		82		95		94
Caroline		72		126		91
Wildcat Hills (outside operated)		34		113		92
Goldboro (outside operated)		31		565		71

1	Based on inlet gas composition, the current volume of sales gas that can be processed with all equipment running and feed gas optimized based on product prices.
2	Based on average daily sales relative to current capacity in 2004.

Shell also has interests in three natural gas liquids fractionation and storage facilities operated by Dow Chemical Canada Inc. (Dow), BP Canada Energy Inc. (BP Canada) and ExxonMobil Canada Properties (ExxonMobil).

            NGL Fractionation/Storage

		Shell Canada’s		Shell Share		Shell Share
		Interest		Capacity		Utilization 1
		(%)		(thousands of barrels per day)		(%)
Fort Saskatchewan, Alberta (Dow)
	De-ethanizer		44		31		64
	Fractionator		42		13		63
Sarnia, Ontario (BP Canada)
	Fractionator		13		15		100
Point Tupper, Nova Scotia (ExxonMobil)
	Fractionator		31		10		37

¹  Based on average daily throughput relative to available capacity.

NARRATIVE DESCRIPTION OF THE BUSINESS      5  

The significant fields in which Shell owns varying interests are:

Natural Gas, Natural Gas Liquids and Sulphur Production		In Situ Bitumen Production
Alberta		Alberta
Burnt Timber	Caroline	Peace River
Clearwater	Jumping Pound
Limestone	Moose/ Whiskey
Panther River	Waterton
Wildcat Hills
Nova Scotia
Alma	North Triumph
Thebaud	Venture
South Venture

A large quantity of the natural gas production comes from fields with natural gas containing significant amounts of liquids and hydrogen sulphide. Production from these fields requires complex treatment, which yields substantial volumes of natural gas liquids and sulphur, as well as marketable natural gas.

Location of Wells

Reference is made to the “Productive Wells” table on page 73 of the Annual Report.

Interest in Material Properties

Reference is made to the “Landholdings” table on page 78 of the Annual Report.

Reserves Estimates

Reference is made to the “Reserves” section on pages 74 and 75 of the Annual Report and to Schedule I on pages 20 and 21 of this Annual Information Form.

Source of Reserves Estimates

Reserves estimates are prepared by the Corporation’s internal qualified reserves evaluators. No independent qualified reserves evaluator or auditor was involved in the preparation of the Corporation’s reserves data. An external, independent petroleum consulting firm audited 100 per cent of the proved oil and gas estimates prepared by the Corporation’s internal reserves evaluators and verified compliance with applicable FASB and SEC requirements.

Shell’s Chief Reservoir Engineer is a qualified reserves evaluator, as defined by NI 51-101, and together with the Company’s internal team of reservoir engineers, evaluates the Company’s oil and gas reserves data. The reserves estimates prepared by the Chief Reservoir Engineer are reviewed by the Chief Executive Officer and members of senior management in the E&P segment and the Reserves Committee prior to submission of the estimates to the Board of Directors for approval.

The Reserves Committee has been delegated the responsibility by the Board of Directors to review the Corporation’s processes and related procedures for the disclosure of reserves data as permitted by NI 51-101. All members of the Reserves Committee are independent, outside directors and are not related to the Corporation or to its significant shareholder.

6        NARRATIVE DESCRIPTION OF THE BUSINESS

Reference is also made to Schedule III and Schedule V on pages 27 and 28 and pages 30 and 31 respectively, of this Annual Information Form.

Reconciliation of Reserves

Reference is made to the “Reserves” section on pages 74 and 75 of the Annual Report.

History

Reference is made to the “Production” table on page 72 of the Annual Report.

REVENUE

Natural Gas ($/mcf)

				2003		2002
		2004		(restated)		(restated)
Average plant gate price			6.49		6.46		4.01
Royalties			1.19		1.18		0.70
Operating expenses
	Plant and field		0.83		0.80		0.73
	Head office		0.46		0.26		0.16
Total operating expenses			1.29		1.06		0.89
Netback			4.01		4.22		2.42

Ethane, Propane and Butane ($/bbl)

				2003		2002
		2004		(restated)		(restated)
Average plant gate price			28.71		25.48		19.53
Royalties			5.41		4.73		2.71
Operating expenses
	Plant and field		5.00		4.82		4.40
	Head office		2.78		1.56		0.98
Total operating expenses			7.78		6.38		5.38
Netback			15.52		14.37		11.44

Condensate ($/bbl)

				2003		2002
		2004		(restated)		(restated)
Average plant gate price			50.46		41.13		37.72
Royalties			11.07		8.87		7.07
Operating expenses
	Plant and field		5.00		4.82		4.40
	Head office		2.78		1.56		0.98
Total operating expenses			7.78		6.38		5.38
Netback			31.61		25.88		25.27

NARRATIVE DESCRIPTION OF THE BUSINESS      7  

Sales Commitments

Volume (millions of boe1)	Source of Production
182.43	Western Canada Sedimentary Basin
30.92	Sable Offshore Energy Project

¹  Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet of natural gas to one barrel of oil, as used in this Annual Information Form, is based on the energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The sales commitments consist of long-term natural gas contracts.

Exploration and Development

Expenditures on exploration and development appear in Schedule I on pages 20 and 21 of this Annual Information Form.

Additional information related to exploration and development activities may be found on pages 18 to 25 of the Annual Report.

OIL SANDS

In 2004, the AOSP achieved its first full year of integrated operations. Under a joint venture agreement, Shell Canada has a 60 per cent interest in the project while Chevron Canada Limited and Western Oil Sands L.P. each hold 20 per cent.

The AOSP joint venture includes the Muskeg River Mine and the Scotford Upgrader.

The Muskeg River Mine, on Lease 13, is located 75 kilometres north of Fort McMurray, Alberta. The Muskeg River Mine uses trucks and shovels to excavate the oil sands, as well as advanced extraction technologies to separate the bitumen from the sands. Albian Sands Energy Inc. operates the mine and extraction plant.

The Scotford Upgrader is adjacent to Shell’s existing Scotford Refinery north of Fort Saskatchewan, Alberta. The Scotford Upgrader uses hydrogen-addition technology to process the bitumen from the Muskeg River Mine into a range of synthetic crude oils. Shell Canada operates the upgrader.

The AOSP is a fully integrated operation with the Corridor Pipeline carrying diluted bitumen from the Muskeg River Mine to the Scotford Upgrader where it is processed into synthetic crude oil products. The majority of the synthetic crude produced at the upgrader is supplied to Shell Canada’s Scotford Refinery, with the remainder moved by pipeline to markets throughout Canada and the United States.

Production was ramped up to near full design rate of 155,000 barrels per day (bpd) in the third quarter of 2004 including a record monthly production level of 182,000 bpd in August 2004. Shell Canada’s share of bitumen production for the year was 29.7 million barrels.

The primary objectives for the AOSP over the next few years will be volume growth by improving plant reliability and selective debottlenecking, and continuous improvement in unit operating costs and product values.

Shell has planned capital expenditures for 2005 of $350 million for Oil Sands base business and growth initiatives. Proposed investment includes $135 million for AOSP operations and profitability, including projects to reduce unit costs. Oil Sands will also invest $215 million in growth projects such as debottlenecking and front-end engineering for a 90,000 bpd expansion project.

The Corporation’s minable bitumen reserves disclosure and related information has been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under NI 51-101 which permits the Corporation to present this disclosure in accordance with the applicable requirements of FASB and the SEC. This disclosure differs from the corresponding information required by NI 51-101. If Shell Canada had not received the decision, the Corporation would be required to disclose reserves estimates based on forecasted prices and costs and information relating to future net revenue using constant and forecasted prices and costs.

8        NARRATIVE DESCRIPTION OF THE BUSINESS

Additional information related to Oil Sands may be found on pages 26 to 31 of the Annual Report and in Schedule II and Schedule IV on pages 22 to 26 and page 29, respectively, of this Annual Information Form.

Revenue by Product

Reference is made to the “Segmented Information” note to the consolidated financial statements on pages 56 to 59 of the Annual Report.

The following table, which excludes inter-segment transfers, sets out the percentage of revenue by customer:

Synthetic Crude Sales (%)	2004		2003		2002
Sales to third parties		95		93		–
Sales to related parties		5		7		–
Total synthetic crude oil sales		100		100		–

Seasonality

There were no significant seasonal fluctuations in the overall Oil Sands business. However, production rates may be lower during extremely cold weather conditions.

Interest in Material Properties

Reference is made to the “Landholdings” table on page 78 of the Annual Report.

Reserves Estimates

Reference is made to the “Reserves” section on page 77 of the Annual Report.

Source of Reserves Estimates

Minable bitumen reserves estimates are prepared by the Corporation’s internal qualified reserves evaluator. No independent qualified reserves evaluator or auditor was involved in the preparation of the Corporation’s reserves data.

Shell’s Chief Mining Engineer is a qualified reserves evaluator, as defined by NI 51-101, and together with the Company’s internal team of geological and mining professionals evaluates the Company’s minable bitumen reserves data. The reserves estimates prepared by the Chief Mining Engineer are reviewed by the Chief Executive Officer and members of senior management in the Oil Sands segment and the Reserves Committee prior to submission of the estimates to the Board of Directors for approval.

The Reserves Committee has been delegated the responsibility by the Board of Directors to review the Corporation’s processes and related procedures for the disclosure of reserves data as permitted by NI 51-101. All members of the Reserves Committee are independent, outside directors and are not related to the Corporation or to its significant shareholder.

Reference is also made to Schedule IV and Schedule V on page 29 and pages 30 and 31, respectively, of this Annual Information Form.

Reconciliation of Reserves

Reference is made to the “Reserves” section on page 77 of the Annual Report.

NARRATIVE DESCRIPTION OF THE BUSINESS      9  

History

Reference is made to the “Production” table on page 76 of the Annual Report.

Gross production includes all production attributable to Shell’s interest before deduction of royalties.

OIL PRODUCTS

Shell Canada’s oil refining, supply, distribution and marketing businesses are managed and operated through Shell Canada Products, a partnership wholly owned indirectly by the Corporation. Shell manufactures and markets a full range of petroleum products, including automotive gasolines, diesel fuels, aviation fuels, heating oils, lubricating oils and greases, heavy fuel oils, solvents and asphalts. In addition to these products, many Shell Canada retail sites provide a variety of other services including a Select convenience store and a car wash.

Additional information related to Oil Products may be found on pages 32 to 39 of the Annual Report.

Methods of Distribution

Shell Canada uses various modes of transportation, including marine, pipeline, rail and truck, to transport crude oil and refined products. Shell arranges marine transportation, principally by charter, to transport petroleum products in the Great Lakes, the Gulf of St. Lawrence, the Arctic and the West Coast. Shell has minority ownership interests in various crude oil and refined product pipelines. Shell Canada’s transportation system for refined products also includes leased railway tank cars and contracted delivery services.

Principal Markets

Refined petroleum products, as well as specialty items for the automotive, commercial, farm and home markets, are marketed nationally, principally under Shell trademarks. Shell Canada is also a major supplier of aviation fuels and lubricants to international and domestic airlines, and of marine fuels and lubricants to ships in Canadian ports. The Shell Pecten trademark, which is owned in Canada by the Corporation, and related trademarks and brand names constitute a cornerstone of the Oil Products business. Shell’s retail market share for large urban markets in Canada was 17 per cent in 2004 (2003 – 17 per cent; 2002 –18 per cent).

The total number of Shell-branded retail sites at year-end 2004 was 1,661 (2003 – 1,693; 2002 – 1,705). The private-brand network consists of 101 retail sites (2003 – 116; 2002 – 133).

The integration and rationalization of the wholly owned private-brand network into Shell’s operations commenced in 1997 and continues as planned. In 2004, 15 private-brand retail sites were either converted or closed.

Revenues by Product

Reference is made to the “Segmented Information” note to the consolidated financial statements on pages 56 to 59 of the Annual Report.

Shell Canada sells 100 per cent of gasoline and middle distillates volumes to third parties.

10        NARRATIVE DESCRIPTION OF THE BUSINESS

Source and Availability of Raw Materials

Shell Canada’s crude oil requirements were supplied from three major sources as shown in the table below. The definition of crude oil includes Scotford Upgrader feedstocks from the AOSP.

Crude Oil Requirements (%)	2004		2003		2002
Domestic industry production		36		39		53
Shell Canada’s own production		27		15		–
Imported production		37		46		47
Total crude oil requirements		100		100		100

Seasonality

There are no significant seasonal fluctuations in the overall Oil Products business over the year and there are no multi-year cycles.

Manufacturing

Shell Canada’s three operating refineries located at Sarnia, Ontario; Montreal, Quebec; and Fort Saskatchewan, Alberta achieved average utilization rates of 89 per cent in 2004 (2003 – 90 per cent; 2002 – 87 per cent). A consistent focus on safe and reliable refinery operations, together with the ability of the sales and trading groups to balance domestic market requirements with export opportunities, has enabled Shell to operate these facilities at efficient utilization rates.

Shell Canada’s refineries continue to account for approximately 16 per cent (2003 – 16 per cent; 2002 – 16 per cent) of Canada’s operating refinery capacity in 2004. The location and rated capacity of each of Shell’s refineries at December 31, 2004 are shown below.

	Daily Rated Capacity 1
Refinery	(cubic metres)		(barrels)
Montreal East (Quebec)		20 700		130 000
Sarnia (Ontario)		12 000		76 000
Scotford (Alberta)		17 700		111 000
Total		50 400		317 000

¹  Rated capacity is based on definite specifications as to types of crude oil and Scotford Upgrader feedstocks, the products to be obtained and the refinery processes, taking into consideration an estimated allowance for normal annual maintenance shutdowns. Accordingly, capacity under actual operating conditions may be higher or lower than rated capacity.

In 2004, Shell’s automated blending plant in Brockville, Ontario, produced 174 million litres of lubricants. This represents an increase of nine per cent over 2003 volumes. The Calgary grease manufacturing facility produced 3.0 million kilograms of soap-based and microgel-based greases in 2004, an increase of 10 per cent over 2003.

COMPETITIVE CONDITIONS

The oil and gas industry in Canada operates under federal, provincial and municipal legislation and regulations governing land tenure, royalties, production rates, environmental protection, exports, income and other matters.

The Canadian petroleum industry is highly competitive in all its aspects, including the exploration for and development of new sources of supply; the acquisition of oil and gas interests; the construction and operation of crude oil, natural gas and refined products pipelines; and the refining, distributing and marketing of petroleum products.

NARRATIVE DESCRIPTION OF THE BUSINESS      11  

In the E&P segment, acquisitions of exploration rights on Crown-owned lands in Canada are subject to an open bidding process. Company-held exploration seismic and drilling data are generally considered trade secrets. Prices of all products are set by market conditions and are subject to international competition.

In the Oil Sands segment, the Company has extensive leaseholdings adjacent to the initial Muskeg River Mine development. The other joint venturers in the initial Muskeg River Mine development have the option to participate in future development involving Shell’s other existing Oil Sands leases.

The Investment Canada Act requires Shell Canada, a statutory non-Canadian and World Trade Organization investor, to notify Industry Canada of all investments resulting in acquisition of control of an existing Canadian business, or the establishment of a new Canadian business where the transaction is not a reviewable transaction. Any direct investment in excess of $237 million in 2004 was reviewable (2005 – $250 million), and an indirect acquisition is reviewable if the value of the assets of the business located in Canada amounts to more than 50 per cent of the asset value of the transaction. Additional thresholds apply for the acquisition or establishment of particular types of Canadian businesses. To date, Shell Canada has not been adversely impacted by this legislation.

In the Oil Products segment, market conditions and site economics of retail outlets suggest a continued asset rationalization program by the Company to improve operating efficiencies within its network.

RESEARCH AND DEVELOPMENT

Research and development expense was $28 million in 2004 (2003 – $10 million; 2002 – $6 million).

ENVIRONMENTAL PROTECTION

Shell Canada has a systematic approach to health, safety and environmental (HSE) management designed to ensure compliance with the law and to achieve continuous performance improvement. The HSE management system provides for identification and control of HSE-related risks arising from the Company’s operations and/or from the areas in which it operates. The Company’s E&P business has met the criteria for multi-site registration of its facilities and operations (including four gas complexes, the Peace River in situ bitumen facility and Wells, Approvals & Seismic Operations) to ISO 14001. All major facilities in the Oil Products business (three refineries and two lubricant plants) and the Oil Sands business (Muskeg River Mine and Scotford Upgrader) are also registered to this international environmental management standard.

Total environmental expenditures for Shell Canada in 2004 and the previous two years are shown in the following table:

Environmental Expenditures ($ millions)	2004		2003		2002
Operating costs		70		80		61
Capital costs		168		25		137
Restoration and reclamation		40		52		49
Total		278		157		247

Operating costs   These include waste disposal, environmental operating costs (such as cost of energy and chemicals for environmental systems), maintenance (of plant systems to ensure continued environmentally sound performance), studies to determine environmental impact, monitoring and reporting requirements, salaries, environmental association fees, hearings, and legal costs and fines. No environmental fines or penalties were incurred in 2004.

Capital costs   These include cost of new equipment and associated construction costs for pollution prevention and controlling air emissions, water discharges and waste management. A significant portion of the capital spent in 2004 ($132 million) was on the ultra-low-sulphur diesel (ULSD) project at Shell’s Montreal East and Scotford refineries. The ULSD project is designed to provide product that can meet new legislated sulphur levels in automotive tailpipe emissions.

12        NARRATIVE DESCRIPTION OF THE BUSINESS

Restoration and reclamation   This includes the costs of spill cleanup, decommissioning and restoration and the protection or restoration of wildlife and habitat.

NUMBER OF EMPLOYEES

The number of employees at the end of 2004 was 4,003 compared with 3,850 at the end of 2003. The number of employees in each segment is as follows:

As at December 31 (number of employees)	2004		2003		2002
E&P		904		859		834
Oil Products		1 921		1 930		1 968
Oil Sands		505		434		425
Corporate1		673		627		598
Total		4 003		3 850		3 825

¹  In 2003 HSE employees were centralized into the Corporate segment.

FOREIGN OPERATIONS

None of the Corporation’s segments depends upon foreign operations.

NARRATIVE DESCRIPTION OF THE BUSINESS      13  

Selected Consolidated Financial Information

ANNUAL INFORMATION

Total Revenue

Reference is made to the “Consolidated Statement of Earnings and Retained Earnings” table, “Revenues” section on page 49 of the Annual Report.

Earnings in Total and on a Per Equity Share and Diluted Equity Share Basis

Reference is made to the “Consolidated Statement of Earnings and Retained Earnings” table on page 49 and the “Data Per Common Share” table on page 79 of the Annual Report.

Total Assets

Reference is made to the “Consolidated Balance Sheet” table on page 51 of the Annual Report.

Long-Term Financial Liabilities

Reference is made to the “Consolidated Balance Sheet” table on page 51 of the Annual Report.

Cash Dividends Declared Per Share

Reference is made to the “Data Per Common Share” table on page 79 of the Annual Report.

Factors Affecting Comparability

2002   Earnings in the year included the $41 million after-tax write-off for the deeper section of Shell’s wholly-owned Onondaga natural gas well offshore Nova Scotia. Oil Products earnings included the impact of extensive shutdowns at each of its three refineries in the second quarter. Although these shutdowns were planned, they significantly reduced plant availability, increased operating costs and lowered yields, which reduced earnings by an estimated $20 million. Earnings in the year also included a benefit resulting from reductions in corporate income tax rates. The future income tax expense for the E&P and Oil Products segments decreased by $12 million and $5 million respectively.

2003   Oil Sands became fully operational in June and reflected a full year loss of $142 million due mainly to start-up related costs. Total earnings in the year included a benefit resulting from a future income tax revaluation and the future income tax expense decreased by $36 million. The Company initiated the expensing of stock options, beginning with options granted in 2003. The total 2003 stock option expense was $12 million.

2004   Shell Canada’s modification to the existing options under the Long Term Incentive Plan resulted in a non-cash charge of $71 million after tax where share appreciation rights were attached. In its first full year of production Oil Sands contributed $378 million to income. Due to the degree of uncertainty in terms of timing and realization of future benefits, the Company wrote off $32 million after tax of front-ended expenditures related to the Mackenzie Gas Project. The Company’s earnings were impacted by a

14        SELECTED CONSOLIDATED FINANCIAL INFORMATION

number of significant dry hole write-offs which included the Weymouth well for $28 million and the Onondaga well for $15 million. Oil Products earnings included a provision of $25 million for increased liability associated with the AIR MILES® Reward Miles program.

Trading Price and Volume

Reference is made to the “Stock-Trading Information” table on page 79 of the Annual Report.

The monthly financial and stock trading information as quoted on the Toronto Stock Exchange for 2004 is as follows:

            Share Price (dollars except as noted)

	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec		Total
High		65.85		64.00		65.00		66.40		66.00		65.01		68.50		67.49		69.46		79.00		80.03		80.00		80.03
Low		57.70		58.60		58.51		61.31		62.50		62.39		62.05		63.00		64.40		68.50		73.25		72.75		57.70
Close		59.01		61.53		62.05		64.50		63.92		64.49		66.26		65.22		69.00		74.98		79.24		79.99		79.99
Volume (thousands)		3 069		2 640		1 683		1 588		2 267		2 662		1 747		2 159		1 845		2 857		2 177		2 037		26 731

Credit Ratings

Reference is made to page 42 of the Annual Report.

DIVIDENDS

Dividends are declared at the discretion of the Board of Directors of the Corporation. In 2004, dividends of 22 cents per share were paid on March 15 and June 15. In July, the Board of Directors increased the quarterly dividend to 25 cents per share, and dividends of 25 cents per share were paid on September 15 and December 15.

Reference is made to the “Summary of Quarterly Results” table on page 11 of the Annual Report.

UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Oil and Gas Disclosure

Disclosure, in accordance with Statement No. 69 of the U.S. FASB, appears in Schedule I on pages 20 and 21 of this Annual Information Form.

United States Generally Accepted Accounting Principles

The significant differences between Canadian and United States generally accepted accounting principles (GAAP) are identified on pages 32 and 33 of this Annual Information Form.

Accounting Policy

Exchange Transactions The Corporation enters into exchange transactions for inventory held for sale in the ordinary course of its business to balance regional supply and demand, increase transportation efficiencies and reduce overall cost of acquiring inventory. These transactions are accounted for using Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions and are netted in cost of goods sold. These transactions do not have a material impact on the Corporation’s earnings.

®Trademark of AIR MILES International Trading B.V. Used under licence by Loyalty Management Group Canada Inc. and Shell Canada Products.

SELECTED CONSOLIDATED FINANCIAL INFORMATION      15  

The Emerging Issues Task Force (EITF) is considering related matters in EITF Issue No. 04-13 Accounting for Purchases and Sales of Inventory with the Same Counterparty. The issue being considered is whether there are circumstances under which nonmonetary exchanges of inventory within the same line of business should be recognized at fair value. A change from historical cost to fair value on nonmonetary exchanges of inventory would not have a material impact on the Corporation’s earnings.

Exploratory Drilling Costs

Pursuant to FASB Statement No. 19 Financial Accounting Reporting by Oil and Gas Producing Companies, the Company’s exploratory drilling costs related to exploratory wells in an area that requires major capital expenditures are carried as an asset, provided that i) there have been sufficient oil and gas reserves found to justify completion as a producing well if the required capital expenditure is made, and ii) drilling of additional exploratory wells is underway or firmly planned for the near future. The determination of whether or not reserves are sufficient is subject to establishing, through a well test, the volume of hydrocarbons that can be economically produced.

The following table provides the net change in capitalized exploration well costs:

($ thousands)	2004			2003			2002
Beginning balance at January 1		68 102			59 088			44 038
Additions to exploratory well costs pending the determination of proved well reserves		101 790			72 295			95 560
Reclassification to well, facilities, and equipment based on the determination of proved reserves		(11 157	)		(21 179	)		(7 615	)
Exploratory well costs charged to expense		(114 629	)		(42 102	)		(78 895	)
Ending balance at December 31		44 106			68 102			59 088

New United States Generally Accepted Accounting Principles

In December 2004, FASB Statement No. 123(R) Stock-Based Payment was issued. Effective for 2005, all stock options will be accounted for using the fair value method. The impact of adopting this standard is dependent upon a number of valuation factors including the share price at December 31, 2005. Based on Shell Canada’s share price at December 31, 2004, it is estimated that there would be a decrease of approximately $5 million in the U.S. GAAP earnings.

Management’s Discussion and Analysis

Reference is made to pages 9 to 46 of the Annual Report.

Off-Balance Sheet Arrangements

The Corporation has entered into an operating lease for large mobile equipment in use at the Muskeg River Mine and has sold accounts receivable under an accounts receivable securitization program. Both of these arrangements are cost effective to the Corporation versus its alternatives. Reference is made to “Accounting Standards” on page 44 of the Annual Report and to the “Commitments and Contingencies” and “Sale of Accounts Receivable” notes on pages 69 and 70, respectively, of the Annual Report.

Market for Securities and Transfer Agent

Reference is made to “Investor Information” on page 84 of the Annual Report.

16        SELECTED CONSOLIDATED FINANCIAL INFORMATION

Directors and Officers

Reference is made to the “Corporate Directory and Board of Directors” table on pages 80 and 81 of the Annual Report, the “Statement of Corporate Governance Practices” on pages 82 and 83 of the Annual Report and pages 41 to 55 of the Proxy Circular and the “Information Concerning Nominees for Election to the Board of Directors” on pages 7 to 11 of the Proxy Circular.

The following were officers of the Corporation as at December 31, 2004:

Name and Municipality of Residence	Position and Office1
Clive Mather Calgary, Alberta, Canada	President and Chief Executive Officer
H. Ian Kilgour Calgary, Alberta, Canada	Senior Vice President, Exploration & Production
Neil J. Camarta Calgary, Alberta, Canada	Senior Vice President, Oil Sands
David M. Weston Calgary, Alberta, Canada	Senior Vice President, Oil Products
Cathy L. Williams Calgary, Alberta, Canada	Chief Financial Officer
Simon A. Fish Calgary, Alberta, Canada	Vice President, General Counsel and Secretary
Graham Bojé Calgary, Alberta, Canada	Vice President, Manufacturing and Supply
Rob W.P. Symonds Calgary, Alberta, Canada	Vice President, Foothills
Timothy J. Bancroft Calgary, Alberta, Canada	Vice President, Sustainable Development, Technology and Public Affairs
Sam Spanglet Calgary, Alberta, Canada	Vice President, Operations, Oil Sands
Matthew B. Haney Calgary, Alberta, Canada	Treasurer
Donna Tarka Calgary, Alberta, Canada	Controller
Susan S. Boughs Toronto, Ontario, Canada	Chief Compliance Officer, Associate General Counsel, Regulatory & Compliance and Assistant Secretary
Shannon L. Cosmescu Calgary, Alberta, Canada	Associate General Counsel, Corporate and Assistant Secretary
John T.D. Courtright Calgary, Alberta, Canada	Associate General Counsel, Oil Sands and Assistant Secretary
Leanne D. Geale Calgary, Alberta, Canada	Associate General Counsel, Oil Products and Assistant Secretary
Richard W. Riegert Calgary, Alberta, Canada	Associate General Counsel, E&P and Assistant Secretary

¹  All of these officers of the Corporation have, for the past five years, been actively engaged in executive or employee capacities with the Corporation or its affiliates, except for Leanne Geale who was previously employed during this period as Counsel and Assistant Secretary for Rio Algom Limited until 2002 and Senior Counsel with the Royal Bank of Canada from 2002 to 2003.

The percentage of common shares of the Corporation owned beneficially, directly or indirectly, or over which control or direction is exercised by the directors, senior officers and any expert whose report is contained in this Annual Information Form, as a group, is less than one per cent.

DIRECTORS AND OFFICERS      17

The Corporation has four committees of the Board of Directors. Reference is made to pages 82 and 83 of the Annual Report for discussion of the four Board committees and their membership.

Reference is made to “Interest of Informed Persons in Material Transaction” on page 12 of the Proxy Circular and Appendix 2 of the Proxy Circular for identification of other entities that transact business with the Corporation of which a director of the Corporation also serves as a director or officer.

Majority Shareholder

Royal Dutch Petroleum Company (Royal Dutch), a Netherlands company, and The “Shell” Transport and Trading Company, plc (Shell T&T), an English company, (together referred to as Royal Dutch/ Shell) hold, indirectly, approximately 78 per cent of the Corporation’s common shares.

On July 29, 2004, Royal Dutch/ Shell reached agreements in principle with the United Kingdom’s Financial Services Authority (FSA) and the staff of the United States Securities and Exchange Commission (SEC) to resolve their pending inquiries related to Royal Dutch/ Shell’s reserves recategorization.

In connection with the agreement in principle with the FSA, Royal Dutch/ Shell agreed, without admitting or denying the FSA’s findings or conclusions, to the entry of a Final Notice by the FSA finding that Royal Dutch/ Shell breached market abuse provisions of the United Kingdom’s Financial Services and Markets Act 2000 and the Listing Rules made thereunder. In connection with the proposed settlement, Royal Dutch/ Shell paid a penalty of £17 million.

In connection with the agreement in principle with the SEC staff, Royal Dutch/ Shell has consented, without admitting or denying the SEC’s findings or conclusions, to an administrative order finding that Royal Dutch/ Shell violated, and requiring Royal Dutch/ Shell to cease and desist from future violations of, the antifraud, reporting, recordkeeping and internal control provisions of the U.S. Federal securities laws and related SEC rules. In connection with the proposed settlement, Royal Dutch/ Shell will pay a U.S. $120 million civil penalty and has undertaken to spend an additional U.S. $5 million developing a comprehensive internal compliance program. The agreement in principle with the SEC staff is subject to final approval by the SEC.

On October 28, 2004, the Royal Dutch and Shell T&T Boards announced that they had unanimously agreed in principle to propose to their shareholders a transaction (the Transaction) through which each of Royal Dutch and Shell T&T will become a subsidiary of Royal Dutch Shell plc, a publicly-listed company incorporated in England and Wales and headquartered and tax resident in The Netherlands. Implementation of the Transaction will be subject to the satisfaction of certain conditions. It is currently expected that the Transaction will be completed in July 2005.

18        DIRECTORS AND OFFICERS

Additional Information

AVAILABILITY OF DOCUMENTS

Copies of the following documents are available upon request from the Corporation’s Secretary: the Annual Information Form for 2004, together with the documents incorporated by reference therein; the Proxy Circular for its most recent annual meeting of shareholders; the Corporation’s Annual Report containing comparative financial statements for 2004, together with the Auditors’ Report thereon; and the Management’s Discussion and Analysis and interim financial statements filed subsequent to December 31, 2004.

When securities of the Corporation are in the course of a distribution pursuant to a short form prospectus, or a preliminary short form prospectus, copies of the foregoing documents and any other documents that are incorporated by reference into the preliminary short form prospectus or short form prospectus may also be obtained from the Corporation’s Secretary upon request.

Additional information including directors’ and officers’ remuneration and indebtedness, principal holders of the Corporation’s securities and options to purchase securities is contained in the Proxy Circular. Additional financial information is provided in the Corporation’s comparative financial statements and Management’s Discussion and Analysis for its most recently completed financial year.

Additional information relating to Shell Canada filed with Canadian and U.S. securities regulatory authorities, including this Annual Information Form and the Form 40-F, can be found online under Shell Canada’s profile at www.sedar.com and www.sec.gov.

ADDITIONAL INFORMATION      19  

Schedule I

(UNAUDITED)

OIL AND GAS DISCLOSURE

The following conventional oil and gas reserves disclosure has been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101) which permits the Corporation to present this disclosure in accordance with the applicable requirements of FASB Statement No. 69 (FAS 69), Disclosures about Oil and Gas Producing Activities. The United States Securities and Exchange Commission has adopted this standard as a comprehensive set of disclosure requirements for conventional oil and gas producing activities. The format of this disclosure adheres to the requirements outlined in paragraphs 10 to 34 of FAS 69. This information differs from the corresponding information required by NI 51-101. Reference is made to E&P on page 3 of this Annual Information Form for a discussion of these differences.

This disclosure is unaudited, no independent qualified reserves evaluator or auditor has been involved in its preparation and it does not include minable bitumen.

			2003		2002
As at December 31 ($ millions)	2004		(restated)		(restated)
CAPITALIZED COSTS
Unproved oil and gas reserves		209		191		168
Proved oil and gas reserves		4 877		4 600		4 314
		5 086		4 791		4 482
Accumulated depreciation, depletion and amortization		3 016		2 539		2 265
Net capitalized costs		2 070		2 252		2 217

Year ended December 31 ($ millions)	2004		2003		2002
COSTS INCURRED
Property acquisition		26		12		9
Exploration costs		171		118		121
Development costs		323		301		259
Total costs incurred		520		431		389

Year ended December 31 ($ millions)
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
Revenues	2 361	2 298	1 715
Operating expenses	749	691	545
Transportation expenses	309	270	236
Exploration and predevelopment expenses	221	81	123
Depreciation, depletion, amortization and retirements	353	282	222
Income tax	275	346	215
Results of operations from producing activities	454	628	373

20        SCHEDULE I

Standardized Measure of Discounted Future Net Cash Flows

The following future net revenue information, in management’s view, does not purport to represent an accurate estimate of the value of the Corporation’s conventional oil and gas operations. The information should be interpreted with considerable caution since actual future cash flows will differ from future net cash flows presented because of, among other things:

(a)	future cash flows will be derived not only from proved reserves but also from probable and potential reserves that ultimately become proved;
(b)	future-year rather than current-year costs and prices will apply;
(c)	economic, regulatory and operating conditions will change; and
(d)	this computation excludes cash flows from minable bitumen activities.

The information includes cash flows related to the Peace River in situ bitumen operation but does not include minable bitumen.

As at December 31 ($millions)		2004			2003			2002
FUTURE NET CASH FLOWS 1
Future cash inflow			10 776			13 892			18 135
Future operating and development costs			4 029			5 858			6 512
Future income taxes			2 045			2 500			4 575
Future net cash flows 2			4 702			5 534			7 048
10% annual discount for estimated timing of cash flows			1 720			2 325			3 359
Standardized measure of discounted future net cash flows from proved oil and gas reserves			2 982			3 209			3 689
CHANGES IN FUTURE NET CASH FLOWS 1
Balance at beginning of year			3 209			3 689			2 199
Changes resulting from:
	Sales, net of operating costs		(1 016	)		(1 073	)		(700	)
	Net changes in prices and operating costs		(226	)		(457	)		3 195
	Extensions, discoveries and improved recoveries, less related costs		597			224			49
	Development costs incurred during the period		319			295			218
	Revisions of previous quantity estimates		(265	)		(809	)		(382	)
	Sales of reserves in place		(173	)		–			–
	Accretion of discount		382			499			220
	Net changes in income taxes		155			841			(1 110	)
Net (decrease) increase for the year			(227	)		(480	)		1 490
Balance at end of year			2 982			3 209			3 689

1	2002 future net cash flow amounts have been restated to reflect certain adjustments relating to that year’s standardized measure. 2003 changes in net cash flow have been adjusted to reflect the new closing balance for 2002.
2	Future net cash flows were computed using year-end prices and costs, and year-end statutory tax rates that relate to existing proved developed and undeveloped oil and gas reserves.

Within the past 12 months, the Company has not filed reserves estimates with any authority or agency of the United States other than the U.S. Securities and Exchange Commission.

SCHEDULE I      21  

Schedule II

OIL SANDS MINING DISCLOSURE

Muskeg River Mine Development History

Shell Canada holds a 60 per cent interest in the Athabasca Oil Sands Project (AOSP), a joint venture established in 1999 to recover oil sands ore from certain leasehold interests in the Athabasca region of northern Alberta and to process the ore into synthetic crude oil products.

The AOSP’s Muskeg River Mine is located on the western portion of Bituminous Sands Lease No. 727708T13 (Lease 13) in northeastern Alberta approximately 75 kilometres north of the city of Fort McMurray and is readily accessible by public road. Figure 1 shows the location of the Muskeg River Mine. The Muskeg River Mine (MRM) is an integrated oil sands mining and mineral processing facility and achieved fully integrated operations in June 2003. The oil sands ore is open-pit mined using a conventional truck and shovel operation, and the mined ore is processed in an on-site bitumen extraction and clean-up facility to yield a bitumen product. Power and steam for the operation is provided from an on-site cogeneration facility which is owned and operated by a third party power company. The bitumen is transported from the site by pipeline to a bitumen upgrading facility located in the Edmonton area of central Alberta. The current facility design rate is 155,000 barrels per day of bitumen production, with opportunities to expand production to 225,000 barrels per day. These facilities are in new condition. The MRM is operated by Albian Sands Energy Inc., a company owned by the AOSP joint venture participants.

Shell Canada originally acquired the mineral rights to Lease 13 in 1956. The Lease 13 resource has since been thoroughly characterized in association with a variety of development studies, however the MRM is the first commercial operation on the lease. With the commencement of commercial mine operations on the western portion of Lease 13, the whole of Lease 13 is characterized as having “continued producing” status and the right to access the bitumen resource on the lease has been extended indefinitely for so long as production is continuing. After the establishment of the AOSP joint venture in 1999, Lease 13 was formally transferred to Albian Sands Energy Inc. to be held in trust for the AOSP joint venture participants.

Shell Canada also holds a number of other oil sands leases that are immediately adjacent to Lease 13. Leases 7288080T88 (Lease 88), 7288080T89 (Lease 89) and 7288080T90 (Lease 90) collectively have significant minable bitumen resources and each have a lease expiry date of August 31, 2008. During 2004 Shell Canada also acquired two additional minable oil sands leases in the general vicinity of the MRM development from EnCana Corporation. These are Leases 7400120009 (Lease 9) and 7401100017 (Lease 17). Both leases have lease expiry dates of December 31, 2015. All these leases may be extended by completing a minimum level of development prior to their expiry. There are no current, and no known previous, commercial operations on any of these leases. The MRM, together with Lease 13 and the adjacent oil sands leases, represent a multi-billion dollar investment for Shell Canada.

The MRM received its primary regulatory approvals in 1999. The regulatory application for the MRM was submitted to the Alberta Energy and Utilities Board (EUB) and Alberta Environment (AENV) in December 1997. The application provides significant background detail on the geology, mine planning features and development scheme, and formed the basis of the approval from the EUB in June 1999 and under the Environmental Protection and Enhancement Act in August 1999.

The following are the primary regulatory applications and approvals for the Muskeg River Mine:

1.	Application for Approval of Muskeg River Mine Project December 1997 (Application No. 9705888) submitted to the EUB and AENV (available at the EUB Library, 640 – 5th Avenue S.W., Calgary, Alberta – Tel: (403) 297-8311);
2.	Supplemental Information for the Muskeg River Mine Project June 1998 (Application No. 970588) submitted to the EUB and AENV (available at the EUB Library, 640 – 5th Avenue S.W., Calgary, Alberta – Tel: (403) 297-8311);

22        SCHEDULE II

3.	Muskeg River Mine Project Decision Report 99-2 by the EUB dated February 12, 1999 (available on-line at www.eub.gov.ab.ca);
4.	Muskeg River Mine Approval No. 8512 Order in Council by the EUB dated June 25, 1999 (available at the EUB Library, 640 – 5th Avenue S.W., Calgary, Alberta – Tel: (403) 297-8311);
5.	Muskeg River Mine 10 year Environmental Protection and Enhancement Act Approval No. 20809-00-01 from AENV dated June 18, 1999 (available on-line at www.gov.ab.ca/env/water/approvalviewer.html search parameter – Albian Sands Energy Inc.); and
6.	Muskeg River Mine Water Resources Act Approval No. 00071821-00-00, as amended, from AENV dated August 4, 1999 (available on-line at www.gov.ab.ca/env/water/approvalviewer.html search parameter – Albian Sands Energy Inc.).

The EUB has also provided Shell Canada with approval for Phase 1 of the proposed Jackpine Mine, a stand alone mining and extraction facility to be located on the eastern portion of Lease 13. The Jackpine Mine Approval No. 9756 Order in Council was issued by the EUB on February 25, 2004. The Jackpine Mine 10 year Environmental Protection and Enhancement Act Approval No. 153125-00-00 from AENV was issued on June 23, 2004. The planned development for the Jackpine Mine includes a proposal to extend development to Leases 88 and 89. This second phase of the Jackpine Mine will require additional regulatory approval.

On September 21, 2004, Shell Canada disclosed a description of plans to expand the capacity of the existing Muskeg River Mine. A regulatory application and environmental impact assessment for a Muskeg River Mine expansion is currently being prepared.

Muskeg River Mine Geology

Lease 13 is situated immediately east of the Athabasca River Valley. Most of the lease comprises gently undulating terrain that ranges in elevation from 330 metres above sea level in the southeast to 284 metres in the west.

The McMurray Formation is the geological unit containing the bitumen hydrocarbon resource. The McMurray Formation was laid down in a marine shoreline setting and is composed, generally, of a sequence of sediments that gets finer in an upward direction – from pebbles five millimetres in diameter, through sand, to silt and mud 0.06 millimetres in diameter and finer. When the McMurray Formation contains bitumen in a sand sized sediment coarser than approximately 0.12 millimetres, this is characterized as oil sands.

The McMurray Formation is present at varying depths beneath the ground over much of northern Alberta. Over 3,400 square kilometres of land has been classified by the EUB as surface minable. Within this area the McMurray Formation is near surface and can be excavated economically with existing mining equipment. The Devonian limestone which lies beneath the McMurray Formation is within 50 metres to 150 metres of surface.

Muskeg River Mine Reserves

Reference is made to the “Reserves” section on page 77 of the Annual Report and to Schedule IV on page 29 of this Annual Information Form.

The MRM development on Lease 13 was designed to access proved and probable reserves over 30 years of operation at the average design production level of 155,000 barrels per day, resulting in 1.7 billion barrels of recoverable bitumen over the project life.

The ultimate pit limits and mine plans were updated in 2004 to incorporate the results from the development drilling since 1999. This represented an update relative to the original mine plans. The result was the identification of additional reserves in the combined East/ West pit area to the west of the Muskeg River. Total reserves continue to be defined based on the original premise of a 30-year development plan.

Figure 2 shows the mining areas associated with the designated reserves for the Muskeg River Mine. Figure 3 shows the core hole coverage for those same areas.

SCHEDULE II      23  

Location of the Muskeg River Mine

March 10, 2005

24        SCHEDULE II

Muskeg River Mine Development Areas

March 10, 2005

SCHEDULE II      25  

Core Hole Coverage for Development Areas

March 10, 2005

26        SCHEDULE II

Schedule III

FORM 51-101F2

Report on Oil and Gas Reserves Data by Qualified Reserves Evaluator

To the Board of Directors of Shell Canada Limited (the Company):

1. Together with my staff, I have evaluated the Company’s reserves data as at December 31, 2004. The reserves data consist of the following:

(a)	proved oil and gas reserves estimated as at December 31, 2004, using constant prices and costs; and
(b)	the related estimated future net revenue.

2.	The reserves data are the responsibility of the Company’s management. Our responsibility is to express an opinion on the reserves data based on our evaluation.
3.	We carried out our evaluation in accordance with standards set out in the Canadian Oil and Gas Evaluation Handbook (the COGE Handbook), modified to the extent necessary to reflect the terminology and standards of the U.S. Disclosure Requirements. We are not, however, independent of the Company, within the meaning of the term “independent” under those standards.
4.	Those standards require that we plan and perform an evaluation to obtain reasonable assurance as to whether the reserves data are free of material misstatement. An evaluation also includes assessing whether the reserves data are in accordance with principles and definitions presented in the COGE Handbook and applicable U.S. Disclosure Requirements.
5.	The following table sets forth the estimated future net revenue (after deduction of income taxes) attributed to proved oil and gas reserves, estimated using constant prices and costs and calculated using a discount rate of 10 per cent, included in the reserves data of the Company evaluated by us for the year ended December 31, 2004:

		Net Present Value of
	Location of Reserves	Future Net Revenue
Internal Qualified	(country or foreign	(after income taxes,
Reserves Evaluator	geographic area)	10% discount rate)
Bruce Roberts	Canada	$2 982 million

6.	In our opinion, the reserves data evaluated by us have, in all material respects, been determined in accordance with the COGE Handbook, modified to the extent necessary to reflect the terminology and standards of the U.S. Disclosure Requirements. We express no opinion on the reserves data that we did not evaluate.
7.	We have no responsibility to update our evaluation referred to in this report for events and circumstances occurring after the date of this report.

SCHEDULE III      27  

8. Because the reserves data are based on judgments regarding future events, actual results will vary and the variations may be material.

Executed as to our report referred to above at Calgary, Alberta:

           
           Bruce Roberts
           Chief Reservoir Engineer


           January 31, 2005

28        SCHEDULE III

Schedule IV

FORM 51-101F2

Report on Minable Bitumen Reserves Data by Qualified Reserves Evaluator

To the Board of Directors of Shell Canada Limited (the Company):

1.	Together with my staff, I have evaluated the Company’s reserves data as at December 31, 2004. The reserves data consist of proved and probable minable bitumen reserves estimated as at December 31, 2004.
2.	The reserves data are the responsibility of the Company’s management. Our responsibility is to express an opinion on the reserves data based on our evaluation.
3.	We carried out our evaluation in accordance with the applicable standards set out in the Canadian Oil and Gas Evaluation Handbook (the COGE Handbook), modified to the extent necessary to reflect the terminology and standards of the U.S. Disclosure Requirements. We are not, however, independent of the Company, within the meaning of the term “independent” under those standards.
4.	Those standards require that we plan and perform an evaluation to obtain reasonable assurance as to whether the reserves data are free of material misstatement. An evaluation also includes assessing whether the reserves data are in accordance with applicable principles and definitions presented in the COGE Handbook and applicable U.S. Disclosure Requirements.
5.	In our opinion, the reserves data evaluated by us have, in all material respects, been determined in accordance with the applicable standards set out in the COGE Handbook, modified to the extent necessary to reflect the terminology and standards of the U.S. Disclosure Requirements. We express no opinion on the reserves data that we did not evaluate.
6.	We have no responsibility to update our evaluation referred to in this report for events and circumstances occurring after the date of this report.
7.	Because the reserves data are based on judgments regarding future events, actual results will vary and the variations may be material.

Executed as to our report referred to above at Calgary, Alberta:

           
           Allen G. Vanderputten
           Chief Mining Engineer


           January 31, 2005

SCHEDULE IV      29  

Schedule V

FORM 51-101F3

Report of Management and Directors on Oil and Gas Disclosure

Management of Shell Canada Limited (the Company) are responsible for the preparation and disclosure of information with respect to the Company’s oil and gas activities in accordance with securities regulatory requirements. This information includes reserves data, which consist of the following:

(a)   (i)  proved oil and gas reserves estimated as at December 31, 2004, using constant prices and costs; and

(ii)  the related estimated future net revenue; and

(b) proved and probable minable bitumen reserves estimated as at December 31, 2004.

Our Chief Reservoir Engineer and Chief Mining Engineer, who are each in an employment relationship with the Company, along with the Company’s internal teams of reservoir engineers and geological and mining professionals, have evaluated the Company’s reserves data. The reports of the internal qualified reserves evaluators will be filed with securities regulatory authorities concurrently with this report.

The Reserves Committee of the Board of Directors of the Company has:

(a)	reviewed the Company’s procedures for providing information to the internal qualified reserves evaluators;
(b)	met with the internal qualified reserves evaluators to determine whether any restrictions placed by management affect the ability of the internal qualified reserves evaluators to report without reservation;
(c)	reviewed the reserves data with management and the internal qualified reserves evaluators; and
(d)	reviewed the report of an external, independent petroleum consulting firm on its audit of 100 per cent of the Company’s proved oil and gas reserves.

The Reserves Committee of the Board of Directors has reviewed the Company’s procedures for assembling and reporting other information associated with oil and gas activities and has reviewed that information with management. The Board of Directors has, on the recommendation of the Reserves Committee, approved the content and filing with securities regulatory authorities of the reserves data and other oil and gas information, the filing of the reports of the internal qualified reserves evaluators on the reserves data and the content and filing of this report.

The Company is relying on exemptive relief, which it sought and was granted by securities regulatory authorities, permitting it to use U.S.-style oil and gas disclosure and exempting it from the requirement under securities legislation to involve independent qualified reserves evaluators or independent qualified reserves auditors.

For 2004, notwithstanding this exemptive relief, the Company also received a report of an external, independent petroleum consulting firm on its audit of 100 per cent of the Company’s proved oil and gas reserves. This report reached a conclusion that is not materially different from the report prepared by our Chief Reservoir Engineer.

In our view, the reliability of the internally generated reserves data is not materially less than was afforded by our involving this firm or would be afforded by our involving any other independent qualified reserves evaluators or independent qualified reserves auditors to evaluate or audit and review the reserves data. The primary factors supporting the involvement of independent qualified reserves

30        SCHEDULE V

evaluators or independent qualified reserves auditors apply when (i) their knowledge of, and experience with, a reporting issuer’s reserves data are superior to that of the internal evaluators and (ii) the work of the independent qualified reserves evaluators or independent qualified reserves auditors is significantly less likely to be adversely influenced by self-interest or management of the reporting issuer than the work of internal reserves evaluation staff. In our view, neither of these factors applies in our circumstances.

Our view is based in large part on the following. Our reserves data were developed in accordance with the applicable standards set out in the Canadian Oil and Gas Evaluation Handbook. Our internal reserves evaluation staff includes 27 persons with an average of 13 years of relevant experience in evaluating reserves, of whom 13 are qualified reserves evaluators for purposes of securities regulatory requirements. Our internal reserves evaluation management personnel includes two persons with an average of 25 years of relevant experience in evaluating and managing the evaluation of reserves. Our procedures, records and controls relating to the accumulation of source data and preparation of reserves data by our internal reserves evaluation staff have been established, refined, documented and subjected to review by our internal financial auditors who have reported directly to the Reserves Committee of the Board of Directors.

Because the reserves data are based on judgments regarding future events, actual results will vary and the variations may be material.

CLIVE MATHER

President and Chief Executive Officer

CATHY L. WILLIAMS

Chief Financial Officer

KERRY L. HAWKINS

Director

DAVID W. KERR

Director

March 10, 2005

SCHEDULE V      31  

Schedule VI

United States Generally Accepted Accounting Principles and Reporting Practices

The financial statements have been prepared in accordance with accounting principles generally accepted in Canada. They differ from those generally accepted in the United States in the following respects:

Capitalization of Interest   Interest costs were expensed as incurred. U.S. accounting principles require capitalization and subsequent amortization of certain interest costs incurred on capital outlays.

Pension Expenses   Prior to 2000, the application of the corridor method of accounting for pension expense used in the U.S. accounting principles resulted in the amortization of gains and losses only if a 10 per cent threshold was exceeded. On January 1, 2000, a new accounting standard was adopted, which harmonized Canadian and U.S. accounting standards. Adoption of the new Canadian standard gave rise to a transition asset, which is being amortized over the expected average remaining service life of the employee group. This amount is not recognized for U.S. reporting purposes.

Derivative Instruments and Hedging Activity   U.S. accounting standard FAS 133 requires that hedging activity that does not qualify as a hedge, be mark-to-market and charged to earnings.

Transactions with Affiliated Companies   U.S. accounting standards require the elimination of profit on transactions, which are not in the normal course of business, between two entities under common control (generally ownership greater than 50%). Canadian accounting standards only require the elimination of profit between two affiliated entities where common ownership is greater than 80 per cent.

Stock-Based Compensation   U.S. accounting standard FAS 123 requires performance-based options to be charged to earnings. Shell Canada adopted the new Canadian standard requiring the expensing of stock options prospectively in 2003.

Variable Interest Entities   Effective for 2004, U.S. FASB Interpretation Number 46R mandates that certain entities are consolidated by the primary beneficiary. The equivalent Canadian rules under Accounting Guideline 15 are effective for the first interim or annual reporting period beginning on or after November 1, 2004.

Asset Retirement Obligations   The U.S. accounting standard FAS 143 became effective in 2003. This standard required the recognition of legal obligations associated with the retirement of tangible long-lived assets. The equivalent Canadian pronouncement was adopted in 2004.

32        SCHEDULE VI

If the Corporation’s financial statements had been presented on the basis of U.S. accounting principles, earnings and earnings per share would have been:

($ millions)		2004			2003			2002
					(restated)			(restated)
Earnings			1 286			810			555
Increase (decrease):
	Capitalized interest amortized		(15	)		(14	)		(12	)
	Pension expense		(1	)		(31	)		(37	)
	Change in fair value of derivative instruments		2			(7	)		3
	Operating expense		19			13			11
	Depreciation expense		(25	)		(13	)		(2	)
	Interest expense		(6	)		–			–
	Elimination of profit on transaction with affiliate		–			–			(24	)
	Stock-based compensation		6			(3	)		(3	)
	Income taxes		10			12			17
Adjusted earnings attributable to common shares			1 276			767			502
Cumulative effect of change in accounting policy after tax			–			(45	)		–
Adjusted earnings after cumulative effect of accounting policy after tax			1 276			722			502
Other comprehensive income			(3	)		(54	)		(103	)
Total comprehensive income			1 273			668			399
Basic earnings per common share (dollars)			4.64			2.79			1.82
Diluted earnings per common share (dollars)			4.61			2.78			1.81
Basic earnings per common share after cumulative effect of change in accounting policy (dollars)			4.64			2.63			1.82

In accordance with U.S. accounting standard FAS 130, a separate statement would be presented which discloses the components of other comprehensive income:

($ millions)		2004			2002			2002
Accumulated other comprehensive income (loss), beginning of year			(169	)		(115	)		(12	)
Increase (decrease):
	Cash flow hedge movements		–			–			19
	Cash flow hedge movements – tax		–			–			(7	)
	Minimum additional pension liability		(2	)		(66	)		(192	)
	Minimum additional pension liability – tax		(1	)		12			77
Accumulated other comprehensive income (loss), end of year			(172	)		(169	)		(115	)

There are no material differences on the Corporation’s Consolidated Statement of Cash Flows.

The net effect of the differences on the Corporation’s Consolidated Balance Sheet is not material except for the following:

From 1996, there is $225 million of retained earnings as a result of the sale of the Chemicals business. This would be classified as contributed surplus.

In 2004, to comply with FAS 87, the prepaid pension asset would be adjusted by an additional minimum liability amount. FAS 87 requires this adjustment to reflect the excess of the plan’s accumulated benefit obligation over the market value of the plan assets. This excess over market value was the result of weakening equity markets. The additional minimum liability of $260 million (2003 – $258 million; 2002 – $192 million) would be reflected as a reduction of pension assets, with a corresponding reduction of the Company’s future income tax liability of $88 million (2003 – $89 million, 2002 – $77 million).

In compliance with FAS 133, in 2004 there is no derivative net asset or liability (2003 – $2 million net liability; 2002 – $6 million net asset).

In compliance with FASB Interpretation Number 46R, assets for 2004 would increase by $200 million and liabilities would increase by $212 million.

SCHEDULE VI      33  

AUDITORS’ REPORTS

To the Shareholders of Shell Canada Limited:

Under date of January 31, 2005, we reported on the consolidated balance sheets of Shell Canada Limited as at December 31, 2004, 2003 and 2002 and the consolidated statements of earnings and retained earnings and cash flows for each of the three years in the period ended December 31, 2004, as incorporated by reference in the Annual Information Form with respect to the year ended December 31, 2004. In connection with our audits of the aforementioned consolidated statements, we also have audited the related supplemental note entitled United States Generally Accepted Accounting Principles and Reporting Practices as set forth in the Annual Information Form. This supplemental note is the responsibility of the Company’s management. Our responsibility is to express an opinion on this supplemental note based on our audits.

In our opinion, such supplemental note, when considered in relation to the basic consolidated financial statements as a whole, presents fairly, in all material respects, the information set forth therein.

          

Chartered Accountants
Calgary, Alberta
January 31, 2005

To the Shareholders of Shell Canada Limited:

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the company’s financial statements, such as the change described in Note 1 to the financial statements. Our report to the shareholders dated January 31, 2005, is expressed in accordance with the Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements.

          

Chartered Accountants
Calgary, Alberta
January 31, 2005

34        AUDITORS’ REPORT

FOR INFORMATION:
Investor Relations
Shell Canada Limited
Shell Centre
400 – 4th Avenue S.W.
Calgary, Alberta T2P 0J4
Telephone (403) 691-2175
www.shell.ca

EX-99.B

Shell Canada Limited

Growth
Profitability
Sustainable Development

1	HIGHLIGHTS
4	PRESIDENT’S MESSAGE
9	MANAGEMENT’S DISCUSSION AND ANALYSIS
	18	Exploration & Production
	26	Oil Sands
	32	Oil Products
	40	Corporate
47	FINANCIAL INFORMATION
	47	Management’s Report
	48	Auditors’ Report
	49	Consolidated Financial Statements
71	SUPPLEMENTAL DISCLOSURE
	71	Oil Products
	72	Exploration & Production
	76	Oil Sands
	78	Landholdings
	79	Financial Data and Quarterly Stock-Trading Information
80	CORPORATE INFORMATION
	80	Corporate Directory and Board of Directors
	82	Statement of Corporate Governance Practices
84	INVESTOR INFORMATION

FINANCIAL HIGHLIGHTS	2004		2003		2002
		(restated)		(restated)
Earnings ($ millions)	1 286		810		555
Cash flow from operations ($ millions) 1	2 350		1 747		1 227
Capital, exploration and predevelopment expenditures ($ millions)	1 021		759		2 289
Return on average common shareholders’ equity (%)	21.3		15.4		11.5
Return on average capital employed (%) 2	19.9		13.1		10.1
Per common share (dollars)
Earnings – basic	4.68		2.95		2.01
Earnings – diluted	4.64		2.92		2.00
Dividends	0.94		0.82		0.80

OPERATING HIGHLIGHTS	2004	2003	2002
Production
Natural gas – gross (mmcf/d)	540	562	610
Ethane, propane and butane – gross (bbls/d)	25 100	26 700	27 900
Condensate – gross (bbls/d)	15 200	16 800	19 700
Bitumen – gross (bbls/d)
Exploration & Production	8 100	9 200	8 900
Oil Sands	81 300	46 300	–
Total bitumen	89 400	55 500	8 900
Sulphur – gross (long tons/d)	5 600	5 900	6 100
Crude oil processed by Shell refineries (m3/d)	45 100	42 900	41 400
Sales
Synthetic crude sales excluding blend stocks (bbls/d)	83 700	46 100	–
Purchased upgrader blend stocks (bbls/d)	38 200	17 700	–
Total synthetic crude sales (bbls/d)	121 900	63 800	–
Petroleum product sales (m3/d)	47 500	45 700	44 400
Prices
Natural gas average plant gate netback price ($/mcf)	6.49	6.46	4.01
Ethane, propane and butane average field gate price ($/bbl)	28.71	25.48	19.53
Condensate average field gate price ($/bbl)	50.46	41.13	37.72
Synthetic crude average plant gate price ($/bbl)	44.67	34.18	–

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	Return on average capital employed is a non-GAAP measure and is defined as 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.

Highlights SHELL CANADA LIMITED   1

RESULTS IN 2004

 

•   RECORD EARNINGS AND CASH FLOW IN 2004 were mainly due to a combination of high commodity prices and refining margins, and strong operational performances across Shell’s business units. Shell Canada’s 2004 return on average capital employed was 19.9 per cent.

•   COMMODITY PRICES REMAINED STRONG throughout 2004. Crude oil prices broke the $50 US per barrel barrier in the fall before softening in the last two months of the year. The annual average price of crude oil was $41.40 US per barrel (West Texas Intermediate). Natural gas prices at Henry Hub averaged $6.05 US per million cubic feet. Wide heavy oil market differentials and high prices for diluent condensate resulted in low values for Canadian bitumen at year-end.

•   OIL PRODUCTS EARNINGS BENEFITED from strong refining margins for most of 2004 as demand for crude oil increased and North American finished product inventories declined. Marketing margins remained depressed for most of the year.

•   CAPITAL EXPENDITURES for the year were $1,021 million compared with $759 million in 2003.

This report contains “forward-looking statements” based upon current expectations, estimates and projections of future production, project startup and future capital spending. Forward-looking statements include, but are not limited to, references to future capital and other expenditures, drilling plans, construction activities, the submission of regulatory applications, refining margins, oil and gas production levels, resources and reserves estimates.

Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, which could cause actual results to differ materially from those anticipated by the Corporation. These risks and uncertainties include, but are not limited to, the risks of the oil and gas industry (including operating conditions and costs), demand for oil, gas and related products, disruptions in supply, project schedules, the uncertainties involving geology of oil and gas deposits, the uncertainty of reserves estimates, fluctuations in oil and gas prices and foreign currency exchange rates, general economic conditions, commercial negotiations, changes in law or government policy, and other factors, many of which are beyond the control of the Corporation.

	COMMITMENTS
	n	GROWTH AND PROFITABILITY are the Company’s main goals. Pursuit of a strong and diverse portfolio of growth projects requires significant capital investment funded by robust and profitable base businesses. While the return on average capital employed may fall in times of heavy investment, the resulting growth will support future, long-term profitability in a continuing cycle.
	n	SUSTAINABLE DEVELOPMENT is the integration of economic, environmental and social considerations into the Company’s day-to-day activities. Shell Canada aims to provide value to its customers in ways that respect environmental and social concerns while contributing to the economic benefit of its shareholders, employees and society at large.
	n	A FOCUS ON OPERATIONAL EXCELLENCE means that all employees are accountable for what they can control in the areas of costs and operations. This includes the operational performance of each segment of the Company in terms of plant reliability, project execution, health, safety and the environment, customer satisfaction and stakeholder engagement.
	n	THE HEALTH AND SAFETY OF EMPLOYEES and contractors is one of Shell Canada’s top priorities. The Company’s safety goal is to cause “no harm to people.”
	n	POLICIES AND PROCEDURES are in place to facilitate compliance with applicable regulations governing every aspect of the Company’s business. All Shell employees are required to conduct business in accordance with them and with a set of business principles and code of ethics to uphold the integrity and reputation of the Company.

	AT A GLANCE	Shell Canada Limited is one of the largest integrated petroleum companies in Canada, comprising three major business units supported by a number of Corporate departments.
		PROFILE
		EXPLORATION & PRODUCTION (formerly Resources) explores for and produces natural gas, natural gas liquids, bitumen and sulphur. The upstream business operates four natural gas processing facilities in the Foothills of Alberta and an in situ bitumen facility near Peace River, Alberta. The Company also has a 31.3 per cent share of the Sable Offshore Energy Project, which produces natural gas and natural gas liquids off the coast of Nova Scotia.
		SHELL CANADA HOLDS A 60 PER CENT INTEREST in the Athabasca Oil Sands Project, which includes the Muskeg River Mine and the Scotford Upgrader. During its first year of fully integrated operations, Oil Sands confirmed that the mine and upgrader can achieve the design rate of an average 155,000 barrels per day. Existing minable resources support possible future production of more than 500,000 barrels per day.
		THE OIL PRODUCTS BUSINESS manufactures, distributes and markets refined petroleum products across the country. Oil Products also procures crude oil and feedstocks for Shell’s refineries in Montreal, Quebec; Sarnia, Ontario; and Fort Saskatchewan, Alberta. The refineries convert crude oil into gasoline, diesel, aviation fuels, solvents, lubricants, asphalt and heavy fuel oils. Shell’s Canada-wide network of 1,762 retail sites includes convenience food stores and car wash facilities.

 2  SHELL CANADA LIMITED Highlights

ACHIEVEMENTS		LOOKING FORWARD
	Earnings of $449 million		Sustain production and develop existing and new assets in the Foothills of Alberta
	Return on average capital employed of 28.3 per cent
			Accelerate activity to progress unconventional gas opportunities
	Major new natural gas discovery in the Foothills of Alberta and successful exploration wells for entry into basin-centred gas
			Expand the Peace River operation
	Start of production from South Venture field offshore Nova Scotia		Advance the Mackenzie Gas Project and position Shell in other frontier basins
	Filing of regulatory applications for the Mackenzie Gas Project and the development plan for Shell’s wholly owned Niglintgak field
	Positioning for entry into coalbed methane
	Record earnings of $378 million		Increase production from the existing operations
	Return on average capital employed of 12.7 per cent
			Reduce unit operating costs
	Average bitumen production at 87 per cent of the design rate for the year, and a record monthly production of 182,000 barrels per day in August		Further improve product quality
			Advance debottlenecking and expansion activities
	Federal and provincial government cabinet approvals for the proposed Jackpine Mine
	Record earnings of $451 million		Continue to improve manufacturing reliability and efficiency
	Return on average capital employed of 21.3 per cent
			Improve retail market share and create added value through strategic alliances
	Industry leadership in unit cost, unit profitability and return on average capital employed
			Offer quality, differentiated fuels with a strong brand image
	Construction of ultra-low-sulphur diesel projects on track for completion in 2006		Improve technology-based interface with customers and alliances
			Highlights    SHELL CANADA LIMITED     3

 PRESIDENT’S MESSAGE

Clive Mather

President and
Chief Executive Officer

For Shell Canada, 2004 was
a year of considerable achievement.

When I moved to Shell Canada in August 2004, I was excited by the strength of the Company and the potential for growth. I have been impressed in particular by the quality of our people – their professionalism, enthusiasm and hard work. Shell Canada’s success is a tribute to previous leadership, not least my predecessor Linda Cook, who encouraged many new initiatives.

For Shell Canada, 2004 was a year of considerable achievement. In a business environment where crude oil prices reached $50 US per barrel, our traditional resource and products businesses both performed very well. And our new business, the Athabasca Oil Sands Project (AOSP), completed its first 12 months of fully integrated operations, making a significant contribution to our overall results. We received federal and provincial cabinet approvals for Jackpine Mine. In addition, regulatory applications were filed for the Mackenzie Gas Project and we filed our development plan for the Niglintgak field in the Mackenzie Delta. Peace River achieved its 50 millionth barrel of bitumen production, South Venture commenced production offshore Nova Scotia and we made a major gas discovery in the Foothills of Alberta.

 4  SHELL CANADA LIMITED President's Message

FINANCIAL PERFORMANCE

The Company enjoyed an outstanding year in 2004 with record earnings of $1,286 million, or $4.68 per common share. This represents a 59 per cent increase from $810 million in 2003 or $2.95 per share, up significantly from our previous record in 2001. High commodity prices and strong refining margins provided favourable economic conditions for our business units. The 2004 results delivered a strong return on average capital employed of 19.9 per cent. Cash flow from operations in 2004 was a record $2,350 million compared with $1,747 million in 2003.

Total shareholder return for 2004 was 32.4 per cent, with quarterly declared dividends increasing to 25 cents per common share from 22 cents. This positioned the Company at the head of the table among the integrated oil companies. It is gratifying to note that, over the past five years, Shell’s quarterly dividends have increased by seven cents or 39 per cent thanks to strong cash flow from all three businesses.

OPERATIONAL PERFORMANCE

Total hydrocarbon production in 2004 broke the previous year’s record, as the AOSP moved closer to sustained production at the design rate of 155,000 barrels per day (bpd) of bitumen.

Exploration & Production (formerly Resources) continued to invest in natural gas fields in Western Canada. This investment combined with the technical skills and ingenuity of our Foothills team resulted in some impressive exploration successes in 2004, including a sizable natural gas discovery in the Tay River area of central Alberta. These successes will help offset the inevitable decline in volumes from our core fields in the Foothills of Alberta and will make an important contribution to the Company’s earnings. In addition, we drilled a number of wells to test the potential value of unconventional gas opportunities in Alberta and British Columbia and are currently assessing the results.

Shell Canada’s Scotford Upgrader upgrades bitumen from the Muskeg River Mine and provides feedstock for the adjacent Scotford Refinery.

Offshore Nova Scotia, we continued to invest in the Sable project, where production from the Alma field helped offset declining natural gas volumes. The South Venture field, which began production late 2004, will do the same in 2005. Altogether, Sable contributed about 23 per cent of Shell Canada’s natural gas production in 2004. However, it was very disappointing that the Weymouth and Cree exploration wells offshore Nova Scotia failed to find commercial quantities of hydrocarbons. Both had to be written off as dry holes.

During its first full year of operation, the AOSP demonstrated its ability to produce at or above the design rates. Bitumen production averaged 92,500 bpd (Shell share) in the third quarter, which was a remarkable achievement in so short a time for a project of such size and complexity. However, operational problems at the Scotford Upgrader reduced fourth-quarter production and earnings. Meeting every challenge, from the extreme cold that hampered maintenance work in January 2004, to repairs to the froth treatment plant settlers at the mine and the reactors at the upgrader, increased our knowledge of and our confidence in this new and growing business.

President's Message SHELL CANADA LIMITED  5

A combination of political instability, increased demand and tight supply drove prices to very high levels. While high crude oil prices helped the profitability of the AOSP, they presented a challenge for our downstream oil business. In a fiercely competitive marketplace, it was simply impossible to pass along the full cost increase to customers.

Nevertheless, Oil Products had an outstanding year. Through operational reliability and customer focus, the business was able to benefit from strong refining margins, high benzene prices and less expensive feedstocks from the integration at Scotford of the refinery with the upgrader, to deliver top performance and record results.

An exploration well in the Tay River area of Alberta made a major natural gas discovery in 2004.

SUSTAINABLE DEVELOPMENT IN ACTION

Sustainable development is the umbrella under which Shell Canada conducts all its business activities. It is an integral part of all our planning, particularly for major growth projects such as the Athabasca Oil Sands and the Mackenzie Gas projects.

The AOSP became the first oil sands operation in Canada to have its environmental management system ISO 14001 certified. Certification means meeting internationally recognized standards of compliance with environmental legislation and continuously improving environmental performance. And Oil Sands continues to lead through environmental impact studies and public consultation with respect to its expansion projects.

In the same way, Exploration & Production has integrated the principles of sustainable development into the planning stages for its potential unconventional gas businesses. In the case of coalbed methane, for example, Shell has published an information package describing best practices with respect to health, safety, sustainability, public consultation and risk management.

In the downstream oil business, each Shell refinery developed a social performance plan. These plans include a framework for effective public consultation with stakeholders and guidelines for being a good neighbour in the communities where we operate.

I share with my predecessors a belief that sustainable development is fundamental to our licence to operate and to our licence to grow. We take pride in running our operations as efficiently as we can on the three principles of sustainability – economic, social and environmental. And we recognize that, unless we can demonstrate that our development of Canada’s resources is sustainable and beneficial to all Canadians, we will not obtain the necessary regulatory approvals and community support for the future. At the end of the day, it’s about being good neighbours, trusted corporate citizens and running a good business.

 6  SHELL CANADA LIMITED President’s Message

Members of Shell Canada’s senior management team, from left:
Simon Fish Vice President, General Counsel and Secretary; Pat Creaghan Director, Corporate Strategies; David Weston Senior Vice President, Oil Products; Cathy Williams Chief Financial Officer; Clive Mather President and CEO; Ian Kilgour Senior Vice President, E&P; Neil Camarta Senior Vice President, Oil Sands; David Fulton General Manager, Human Resources; Tim Bancroft Vice President, Sustainable Development, Technology and Public Affairs.

SAFETY PERFORMANCE

There were some notable achievements in 2004, including best-ever safety performance for Exploration & Production. In Oil Products, Montreal East Refinery logged four million hours without a lost-time incident, and both Scotford and Sarnia refineries recorded two million hours.

Nevertheless, we continue to fall short of our goal of no harm to people. Even one injury is one too many. In 2004, 14 people suffered work-related injuries severe enough to keep them off work for a while. Quite simply, I find this unacceptable and we must do even more to embed safety consciousness into the hearts and minds of every Shell employee and every contractor who works on our behalf. To this end, I have started to investigate personally every incident that results in someone needing time off work to recover.

CORPORATE GOVERNANCE AND COMPLIANCE

No matter how well a company performs financially and operationally, shareholders and other stakeholders have a low tolerance for poor corporate governance – and rightly so. Compliance and transparency are the bedrock of a company’s reputation, and challenge us to check constantly that our internal controls are appropriate and our culture encourages compliance.

Shell Canada has a solid reputation for regulatory compliance and we are working hard to address evolving Canadian and U.S. securities regulations, including the U.S. Sarbanes-Oxley Act. I believe we have sound internal controls in place with a firm foundation in our Statement of General Business Principles and Code of Ethics. Nevertheless, we must remain vigilant and continue to improve our processes. Hence, we have adopted the best-practice guidelines for reserves reporting developed by Shell internationally and established a new department of Corporate Governance in 2004 to coordinate the review of our internal controls and assess any potential impact on financial reporting. We have also created a new position of chief compliance officer.

President's Message SHELL CANADA LIMITED    7

LOOKING FORWARD

Shell Canada’s 2005 capital and exploration expenditure program of $1.8 billion is an increase of more than 60 per cent over the 2004 program and reflects our commitment to growth.

Exploration & Production will direct about 60 per cent of its spending program to the maintenance of natural gas production levels in the Foothills of Western Canada and the Sable gas project offshore Nova Scotia. The Foothills area particularly remains the core of our business and our profitability. The balance of the program will support growth opportunities, including the further evaluation of unconventional natural gas plays. We will continue to develop our Peace River in situ bitumen property in Western Canada and progress the Mackenzie Gas Project in the Far North.

We have a brand to be admired
and a company that is going places.

The 2005 investment program for Oil Sands is divided between profitability and growth. Profitability projects will reduce unit costs and improve energy efficiency; growth projects will focus on debottlenecking existing operations and front-end engineering for future expansion.

Oil Products will invest in a number of manufacturing and distribution projects, including the distillate hydrotreater projects at our Montreal East and Scotford refineries. These major projects are on track to meet the deadline for producing and distributing ultra-low-sulphur diesel in 2006. The marketing investment program will be used to strengthen the retail network in major urban areas.

Crude oil prices steadily increased in 2004. They eventually reached $50 US per barrel before falling to the low $40 US per barrel range towards the end of the year. No one can predict with accuracy what future prices will be, but I believe market fundamentals have shifted upwards in recent years. For planning purposes, we test our investments at a number of different price levels and exchange rates to ensure robust profitability. This gives me confidence that we can look forward to ongoing profitable growth for some years to come.

Once again, our Board of Directors served the shareholders of Shell Canada well in 2004. I would like to thank the directors for their guidance and support. I look forward very much to working with them in the coming years. In particular, I would like to express my personal gratitude to Mr. Jeroen van der Veer for his contribution to the Board since his election in 2003. Mr. Van der Veer will not be standing for re-election in 2005. On behalf of Shell Canada, I wish him every success in his role as Chief Executive of Royal Dutch/Shell.

I am also grateful to our investors for their continuing support.

Finally, I thank each one of our employees for their warm welcome to me and for their contribution to the business results. The achievements of 2004 were fitting recognition of their skills and industry. The plans for 2005 are built upon their talent and commitment. We have a brand to be admired and a company that is going places. I am proud to be part of such a great team.

Clive Mather

President and
Chief Executive Officer

Calgary, Alberta,
March 10, 2005

 8  SHELL CANADA LIMITED President's Message

      

MD&A March 10, 2005

Shell Canada’s reputation rests on the
honesty and integrity of all its business dealings.

MANAGEMENT’S DISCUSSION AND ANALYSIS

In this Management’s Discussion and Analysis:

§	All information is reported in Canadian dollars and in accordance with Canadian generally accepted accounting principles (GAAP) unless otherwise stated.
§	Certain financial measures are not prescribed by Canadian 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 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.
§	All forward-looking statements are qualified by the cautionary note on page 1 of this report.
§	The Corporation’s reserves disclosure and related information have been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101), which permits the Corporation to present its reserves disclosure and related information in accordance with the applicable requirements of the United States Financial Accounting Standards Board (FASB) and the United States Securities and Exchange Commission (SEC). This disclosure differs from the corresponding information required by NI 51-101. If Shell Canada had not received the decision, it would be required to disclose (i) proved plus probable oil and gas reserves estimates based on forecast prices and costs and information relating to future net revenue using forecast prices and costs, and (ii) minable bitumen reserves estimates based on forecast prices and costs and information relating to future net revenue using constant and forecast prices and costs. The Corporation’s internal qualified reserves evaluators prepare the reserves estimates.
§	Certain volumes have been converted to barrels of oil equivalent (boe). Boe’s 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 report, is based on the energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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 Shell Canada’s profile at www.sedar.com and www.sec.gov.

Management’s Discussion and Analysis SHELL CANADA LIMITED   9

 MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL RESULTS

Shell Canada reported record earnings of $1,286 million or $4.68 per common share for the full year 2004 compared with $810 million or $2.95 per share for 2003. Total earnings included positive earnings of $8 million in the Corporate sector. Fourth-quarter 2004 earnings fell slightly to $182 million or $0.66 per common share from $190 million or $0.69 per share for the same period in 2003.

Return on average capital employed was 19.9 per cent in 2004 compared with 13.1 per cent the previous year. Cash flow from operations was $2,350 million in 2004, which broke the previous year’s record of $1,747 million.

The main reasons for the improvement in 2004 were high commodity prices and refining margins as well as a significant contribution from the Athabasca Oil Sands Project (AOSP). The increase also related to a record performance by Oil Products. In addition, the 2004 earnings benefited from favourable tax assessments related to prior years and lower interest costs. In its first complete year of fully integrated operations, the AOSP demonstrated that it can achieve the design rate of an average 155,000 barrels of bitumen per day and contributed to record hydrocarbon production. Fourth-quarter results reflected non-cash charges totalling $128 million, including a non-cash charge of $71 million after-tax related to changes to the Company’s Long Term Incentive Plan.

Capital and predevelopment expenditures totalled $1,021 million compared with $759 million in 2003. The increase related mainly to higher expenditures in Exploration & Production (E&P, formerly Resources) and Oil Products. In 2004, E&P invested $229 million in the Foothills and $212 million in frontier areas. The upstream business also invested in exploration for unconventional natural gas.

The 2004 capital spending by Oil Sands amounted to $179 million. About 56 per cent of the total supported projects to ramp up production and debottleneck processes in the base operation. Shell invested the balance in progressing growth opportunities.

Total capital expenditures by Oil Products reached $313 million. Of this total, $133 million was for projects at the Montreal East and Scotford refineries to achieve the legislated move towards ultra-low-sulphur diesel production. The balance was split between Distribution and Lubricants, and Marketing.

RESERVES

At the end of 2004, gross proved natural gas reserves totalled 1,595 billion cubic feet (bcf) after production of 198 bcf. This was a reduction of 180 bcf from 1,775 bcf at the end of 2003. Extensions, discoveries and additions from improved recovery totalled 164 bcf, which included an initial booking of 82 bcf for a discovery in the Tay River area of Alberta. However, a change in working interest of 48 bcf at Panther River and a net negative revision of 98 bcf contributed to the overall decrease of natural gas reserves. The net negative revision is the sum of technical reserves revisions for each field in the E&P portfolio and economic revisions due to the application of year-end prices and costs. Shell produced 15 million barrels of natural gas liquids in 2004. Together with negative technical and economic revisions, this production resulted in a 17 million barrel decrease in gross proved natural gas liquids reserves.

U.S. guidelines require Shell to use year-end pricing in oil and gas reserves calculations. Since prices for Canadian bitumen were unusually low at year-end 2004, Shell removed all of its remaining proved Peace River bitumen reserves from the books at December 31, 2004. Consequently, all 182 million barrels of gross proved bitumen reserves reported at the end of 2003, less 2004 production, were written off. This change will not have any material financial impact and Peace River remains a valuable part of the Company’s portfolio.

In 2004, gross proved minable bitumen reserves fell to 621 million barrels from 651 million barrels in 2003 as a result of producing 30 million barrels of minable bitumen. Total proved and probable minable bitumen reserves decreased by the same amount to 971 million barrels at the end of 2004.

10  SHELL CANADA LIMITED Management’s Discussion and Analysis

SUMMARY OF QUARTERLY RESULTS

(unaudited)	2004													2003 (restated)
	Quarter											Total		Quarter											Total
($ millions except as noted)	1st			2nd			3rd		4th			Year		1st			2nd			3rd			4th		Year
Earnings
Sales and other operating revenues		2 514			2 640			3 058		3 076			11 288		2 457			2 073			2 275			2 312		9 117
Expenses		1 971			2 192			2 441		2 799			9 403		2 103			1 858			1 899			2 049		7 909
Earnings before income tax		543			448			617		277			1 885		354			215			376			263		1 208
Income tax		175			163			166		95			599		141			40			144			73		398
Earnings		368			285			451		182			1 286		213			175			232			190		810
Segmented Earnings
Exploration & Production		156			91			129		73			449		202			200			129			88		619
Oil Sands		96			96			173		13			378		(105	)		(68	)		12			19		(142	)
Oil Products		118			110			114		109			451		117			52			103			72		344
Corporate		(2	)		(12	)		35		(13	)		8		(1	)		(9	)		(12	)		11		(11	)
Earnings		368			285			451		182			1 286		213			175			232			190		810
Per Common Share(dollars)
Earnings – basic		1.34			1.04			1.64		0.66			4.68		0.77			0.64			0.84			0.69		2.95
Earnings – diluted		1.33			1.03			1.63		0.66			4.64		0.77			0.63			0.84			0.69		2.92
Cash dividends		0.22			0.22			0.25		0.25			0.94		0.20			0.20			0.20			0.22		0.82
Weighted average shares (millions)		275			275			275		275			275		276			275			275			275		275
Dilutive securities (millions)		2			2			2		2			2		1			2			2			2		2

SELECTED ANNUAL FINANCIAL INFORMATION

Year ended December 31
($ millions except per share data)	2004		2003		2002
				(restated)		(restated)
Revenues		11 288		9 117		7 550
Earnings		1 286		810		555
Total assets		10 906		9 613		9 517
Long-term debt		1		2		523
Per common share (dollars)
Earnings – basic		4.68		2.95		2.01
Earnings – diluted		4.64		2.92		2.00
Cash dividends		0.94		0.82		0.80

Management's Discussion and Analysis SHELL CANADA LIMITED   11

MANAGEMENT’S DISCUSSION AND ANALYSIS
12	SHELL CANADA LIMITED	Management’s Discussion and Analysis

SHAREHOLDER RETURN

Total shareholder return in 2004 was 32.4 per cent. In the fourth quarter, the Company’s quarterly dividend was $0.25 per common share compared with $0.22 in the same period of 2003. Dividends paid for the year totalled $0.94 per common share, up from $0.82 per share in 2003.

BUSINESS ENVIRONMENT

Political instability in many parts of the world, hurricane damage in the Gulf of Mexico, rising producer costs and growing global oil demand prompted concerns about the stability of crude oil supply in 2004. The resulting market uncertainty led to volatile yet robust pricing for all commodities throughout most of the year.

Economic growth created a higher demand for light, refined oil products (gasoline and diesel). As a result, light sweet crude feedstocks were priced at a premium. At the same time, incremental production tended to be heavy, sour crude oil, which is less desirable to produce than light oil products. Therefore, the price differential between light and heavy crude widened during 2004.

Benchmark crude oil prices rose to historic highs in 2004, with West Texas Intermediate (WTI) reaching more than $50 US per barrel. The average oil price in 2004 was $41.40 US per barrel (WTI).

Concerns about supply and the high price of fuel oil supported strong natural gas prices through 2004. Seasonal demand was not a significant factor in 2004, as prices remained quite stable during the first three quarters of the year. In September, Hurricane Ivan shut in some production from the Gulf of Mexico and, with the expectation of production losses extending into the first quarter of 2005, natural gas prices rose in the fourth quarter of 2004.

The monthly index price for natural gas at Henry Hub, the largest trading point for natural gas in the United States, reached $7.78 US per million British thermal units (mmBtu). In Canada, prices tracked closely with Henry Hub and the monthly index peaked above $7.59 Cdn per gigajoule (at an average discount to Henry Hub of $0.83 per mmBtu). The Company realized an average plant gate price of $6.49 Cdn per thousand cubic feet (mcf), a slight increase over $6.46 per mcf in 2003.

Low inventories in the United States and a tight balance between supply and demand resulted in strong refining margins. At the retail level, oil product demand overall in Canada showed considerable strength. High product pricing in the marketplace depressed demand for premium gasoline, while intense competition, particularly in Ontario, compressed retail margins.

Natural gas liquids include ethane, propane, butane and condensate. Ethane prices in 2004 were marginally better than in 2003. Prices for propane increased slightly over 2003 while butane and condensate values improved by more than 20 per cent as they are more closely linked to crude oil pricing. Increased heavy oil production in the Western Canada Sedimentary Basin also led to high condensate and butane demand. These natural gas liquids are used to dilute bitumen and heavy crude oils so they can be transported by pipeline and used as a refinery feedstock for production of gasoline.

The international sulphur market experienced continued strong demand, particularly in China. Global production of sulphur remained stable. Robust international prices reflected a tight balance in worldwide supply and demand, and mitigated increases in ocean freight costs. In contrast, the North American liquid sulphur market weakened in the second half of 2004, reflecting pressure from rising energy costs in the fertilizer industry, which uses ammonia derived from natural gas.

Management’s Discussion and Analysis SHELL CANADA LIMITED   13

MANAGEMENT’S DISCUSSION AND ANALYSIS
Sensitivity Analysis
Fluctuations in commodity prices, margins and the foreign exchange rate can significantly affect the Company’s financial results, as shown in the table below.
2004 OPERATING EARNINGS SENSITIVITIES (after-tax annualized)			Increase (Decrease)
Exploration & Production
Natural gas		10-cent US increase per million Btu (Henry Hub)	$	8 million
Condensate		$1 US increase per barrel (West Texas Intermediate)	$	3 million
Bitumen		$1 US increase per barrel (West Texas Intermediate)	$	3 million
Sulphur		$1 Cdn increase per tonne	$	1 million
Foothills natural gas production		Increase of 10 mmcf/day	$	10 million
Oil Sands
Crude oil		$1 US increase per barrel (West Texas Intermediate)	$	25 million
Natural gas		10-cent US increase per million Btu (Henry Hub)	$	(2) million
Equity production		Increase of 1,000 bbls/day	$	10 million
Oil Products
Light oil sales margin		1/4-cent Cdn increase per litre	$	24 million
Natural gas		10-cent US increase per million Btu (Henry Hub)	$	(3) million
Exchange Rate		1-cent improvement in $Cdn vs. $US	$	(24) million
14	SHELL CANADA LIMITED	Management’s Discussion and Analysis

HEALTH, SAFETY, ENVIRONMENT AND
SUSTAINABLE DEVELOPMENT

Shell Canada measures its commitment to sustainable development by the economic, environmental and social performance of its businesses. The Company integrates these three aspects in the planning and implementation of its projects and in the management of its operations. In this way, the Company seeks to meet current energy needs and generate the profits necessary for investment in future growth. Shell also strives to safeguard the health and safety of people, protect the environment and contribute appropriately to the general well-being of the communities and the broader societies that grant Shell’s licence to operate.

The fourteenth annual Progress Toward Sustainable Development report details Shell’s environmental and social performance in 2004. The report will be available in print and on www.shell.ca in April 2005.

Managing Resources and Protecting the Environment

Shell Canada is on track to meet its voluntary greenhouse gas reduction target of six per cent below 1990 levels by 2008 for its base businesses (E&P and Oil Products). Reductions are mostly due to improvements in energy efficiency.

Safeguarding People

The safety and well-being of employees, contractors and neighbours is of the greatest importance in Shell Canada’s management of its social performance.

Shell’s total recordable injury frequency for employees and contractors in 2004 was 0.96 for every 200,000 hours worked. This was lower than 1.05 in 2003. Shell continues to focus on health and safety and reaffirm its goal of “no harm to people.”

Wells, Approvals and Seismic Operations received the 2004 President’s Safety Award. This award recognizes the department or operating unit with the most outstanding safety performance and overall approach to safety management.

Shell’s Waterton natural gas plant lies in the Foothills of the Rocky Mountains near the U.S. border in southwestern Alberta.

Benefiting Communities

Shell donated a total of $6 million to not-for-profit organizations across Canada in 2004. The funds supported environmental and educational programs as well as local communities where employees, retirees and marketing associates live and work. In addition, thousands of Shell employees, retirees, retailers and even children of Shell employees volunteered over 10,000 hours through the Company’s United Way campaigns, Community Service Fund and United Way Days of Caring^® program.

Shell Canada matched employee and retiree donations to United Way campaigns across Canada for a total contribution of $3.8 million. This includes a record-breaking $2.9 million donation to United Way of Calgary and Area. Shell’s donation was the largest in Alberta history and the biggest of any organization headquartered in Western Canada.

In April 2004, the Company relaunched the Shell Environmental Fund (SEF) with a stronger emphasis on results and environmental benefit. The SEF supports environmental improvement and protection across Canada through local, community-driven projects.

^® Trademark of the United Way of Canada. Used under licence by Shell Canada Limited.

Management’s Discussion and Analysis SHELL CANADA LIMITED  15

 MANAGEMENT’S DISCUSSION AND ANALYSIS

Over the past 25 years, Shell Canada has donated nearly $4 million in financial resources, land and mineral rights to the Nature Conservancy of Canada (NCC). As part of the Shell Conservation Internship program, a $500,000 commitment by Shell Canada over three years, the NCC hired 16 students of environmental sciences at universities and colleges across Canada to undertake important stewardship work on NCC’s ecologically precious places in 2004.

Shell continues to work with Aboriginal communities in a spirit of trust, respect and understanding. The Company funds education and cross-cultural awareness initiatives that benefit Aboriginal communities that are home to Shell’s major facilities and exploration and production interests. In 2004, Shell continued its support of the National Aboriginal Achievement Foundation with a $100,000 per year scholarship program in the areas of business, science and engineering. A total of 36 Aboriginal students received Shell scholarships in 2004.

People

For the fifth consecutive year, Mediacorp selected Shell Canada as one of Canada’s Top 100 Employers. Shell Canada’s reputation as an employer of choice is critical given the shortages in a number of skill areas now facing the oil and gas industry.

Seventy per cent of Shell Canada employees participated in the 2004 global people survey administered by Royal Dutch/Shell and almost 70 per cent expressed their overall satisfaction with the Company.

Working with stakeholders

An important element of sustainable development is early and continuous dialogue with stakeholders. Shell representatives are in contact with elected officials and government administrators to help develop policies and standards that will benefit the industry and the people of Canada. The Company also works through its membership and representation in industry organizations.

Community consultation is tremendously important, particularly for major new projects. Shell’s model is to engage local communities at the start of the planning process and communicate with them through development, construction, startup and beyond.

Shell Canada also welcomes appropriate input from experts outside the oil and gas industry. The Shell Canada Climate Change Advisory Panel met twice in 2004 to provide an external perspective on the Company’s climate change activities. Panel members include Shell Canada’s president and representatives of Royal Dutch/Shell, local communities, and national and international environmental organizations.

CORPORATE GOVERNANCE AND INTERNAL CONTROLS

Shell Canada promotes strong financial, business and anti-fraud controls in its business processes and maintains high standards for financial reporting integrity. This provides an excellent framework to meet the requirements of the U.S. Sarbanes-Oxley Act of 2002 and similar Canadian standards. The Company has filed annual certifications in compliance with Section 302 of the Sarbanes-Oxley Act for the last three years.

Under Section 404 of the Sarbanes-Oxley Act (SOx404), management must report on the effectiveness of internal controls over financial reporting. Shell has put together a SOx404 team to coordinate compliance with the requirements of SOx404. The team comprises representatives from a number of areas in the organization and works closely with each of the business units to identify, document, assess and test the internal controls. In May 2004, the Company created the position of director, Corporate Governance. This position is responsible for implementing SOx404 requirements and similar evolving Canadian standards.

Effective November 1, 2004, Shell created the position of chief compliance officer. This position is responsible for advising directors, management and employees on legislative requirements, rules, regulations, and Company policies and procedures.

16  SHELL CANADA LIMITED Management’s Discussion and Analysis

RISK MANAGEMENT

Each year, Shell Canada assesses areas of risk and decides how to mitigate them to acceptable levels. The Board of Directors reviews the identified risks, which are consolidated for the overall Company. The areas of risk that apply to the entire organization include organizational capability, major project execution, corporate reputation and brand. Each business unit discusses the risks specific to its operations in its own section of this report.

Organizational Capability

The ability to achieve Shell Canada’s business objectives and strategies depends on attracting, retaining and developing highly skilled and motivated people in a very competitive environment.

As part of its business planning process, each business develops people plans, including recruitment targets for university and college graduates and for experienced staff, as well as employee training and development. In particular, the plans take into account higher levels of retirement anticipated over the next few years.

Shell Canada employees can take advantage of a wide range of in-house opportunities for training and development offered by the Company. World-class technical and leadership development programs are also available through Royal Dutch/Shell.

The senior management team and the Management Resources and Compensation Committee (MRCC) of the Board regularly assess the quality of future leadership talent. Shell Canada makes particular efforts to provide its future senior leaders with development opportunities in Royal Dutch/Shell’s businesses around the world. In 2004, the MRCC conducted a comprehensive review of the Company’s succession plans and leadership pool.

Shell employees helped renovate the Independent Living Resource Centre, a United Way-funded agency supporting independence for people with disabilities in Calgary.

Major Project Execution

The Company has identified a number of major growth projects in the coming years that require highly efficient delivery to meet expected growth targets. Key risks in undertaking these projects include cost overruns and schedule delays. Mitigation measures include improving project management skills and processes between business units, and leveraging expertise residing in other areas of Royal Dutch/Shell.

Corporate Reputation

The strength of Shell Canada’s reputation and profile affects the Company’s ability to sustain and grow the business. A positive reputation and higher profile with the public, governments and other stakeholders will help Shell to obtain regulatory approvals and community support. It will also enable the Company to compete more effectively for employees. The basis of the corporate reputation management program is a continuing commitment to sustainable development.

Brand

A strong brand is the foundation of Shell Canada’s profile in the community. The possibility of brand value erosion and loss of market share are key risks. Efforts to strengthen the brand include upgrading the Retail network, strengthening brand representations and improving corporate identity in Company facilities, including Shell Centre.

Management’s Discussion and Analysis SHELL CANADA LIMITED  17

Toy River exploration well in central Alberta

EXPLORATION & PRODUCTION (MD&A)

Effective January 1, 2004, Shell renamed its Resources business unit Exploration & Production (E&P). E&P earnings for the year ended December 31, 2004, were $449 million compared with $619 million in 2003. Lower production volumes, higher exploration expenses due to increased activity and higher depreciation charges for the Sable Offshore Energy Project (SOEP) were the main reasons for the decrease.

Non-cash charges related to expensing costs for the Mackenzie Gas Project and changes related to the Company’s Long Term Incentive Plan also reduced 2004 earnings by $32 million and $24 million respectively. Earnings for 2003 had also benefited from a revaluation of future income taxes.

Fourth-quarter earnings decreased by $15 million to $73 million for the same period in 2003. In addition to the non-cash charges mentioned above, factors in the fourth-quarter decline also included lower volumes and a non-cash after-tax charge of $15 million for the writeoff of the remaining costs of the Onondaga exploration well.

Shell’s production volumes from Western Canada and SOEP declined from 2003 levels. However, a number of exploration successes in Western Canada, including the Tay River discovery in Alberta (75 per cent Shell share) and other discoveries in northeastern British Columbia and southern Alberta, will help offset natural field decline in the future. Production of natural gas sales volumes in 2004 was 540 million cubic feet per day (mmcf/d) compared with 562 mmcf/d the previous year. E&P benefited from strong commodity prices in 2004 and the Company realized a natural gas average price of $6.49 per thousand cubic feet (mcf) compared with $6.46 per mcf in 2003.

The Tay River exploration well is located about 30 kilometres southwest of Rocky Mountain House in central Alberta.

Current E&P natural gas production is from the Foothills of Alberta and a 31.3 per cent share in SOEP offshore Nova Scotia. The focus of exploration and development activity in these areas is largely to offset natural field decline. Shell is also pursuing future growth opportunities in Peace River, the Mackenzie Delta and unconventional natural gas plays in Alberta and British Columbia.

EXPLORATION & PRODUCTION HIGHLIGHTS

($ millions except as noted)	2004		2003		2002
			(restated)		(restated)
Revenues		2 198		2 113		1 620
Earnings		449		619		382
Capital employed		1 523		1 648		1 673
Capital, exploration and
predevelopment
expenditures		521		431		389
Return on average
capital employed (%)		28.3		37.3		23.7

EXPLORATION & PRODUCTION (MD&A) SHELL CANADA LIMITED    19

 EXPLORATION & PRODUCTION (MD&A)

H. Ian Kilgour
Senior Vice President, Exploration & Production

E&P has increased its land
inventory to include prospects for an
expanded exploration program.

20  SHELL CANADA LIMITED  EXPLORATION & PRODUCTION (MD&A)

FOOTHILLS

The Foothills business continued to make a significant contribution to the profitability of E&P and the Company overall. The business comprises numerous producing areas and four Shell-operated natural gas plants in southern and south-central Alberta. In 2004, Foothills natural gas operations produced 415 mmcf/d of sales gas, which accounted for 77 per cent of Shell’s natural gas production. In addition, they produced 23,300 barrels per day (bpd) of natural gas liquids, 12,700 bpd of condensate and 5,600 tonnes per day of sulphur.

Capital investment in Foothills was $229 million in 2004, of which $61 million was for exploration.

The Foothills exploration program identifies prospects around existing infrastructure and prospective play areas in northern Alberta and British Columbia with a view to offsetting production decline and adding new reserves to Shell’s portfolio. E&P has increased its land inventory to include prospects for an expanded exploration program in northeastern British Columbia. Exploration investment in 2004 included participation in eight exploration wells, which resulted in two wells being put into production in 2004. At year-end, three wells awaited tie-in and two wells were in progress. One of the wells awaiting tie-in is a major natural gas discovery, the Tay River exploration well located about 30 kilometres southwest of Rocky Mountain House in central Alberta. The Tay River discovery, in which Shell has a 75 per cent interest, is estimated to hold between 500 and 800 billion cubic feet of raw gas in place. Production from Tay River is expected to start mid-2005.

 EXPLORATION & PRODUCTION (MD&A)

In 2004, Shell invested approximately $100 million in development drilling and related facilities, mainly in the Limestone, Burnt Timber, Moose Mountain and Waterton areas. The Company also invested $17 million in compression projects to increase production. A joint venture program continued in the Panther area. The second and third wells came on stream in 2004 and early 2005, respectively, and drilling of the fourth well was still underway at year-end. When this final well is successfully completed, the other joint venture participant will have earned the right to a 50 per cent interest in future Panther investments.

Work continued on various opportunities to facilitate the efficient use of existing infrastructure and ensure the ongoing cost competitiveness of the Foothills assets. In 2004, construction began on a pipeline connection between the Moose Mountain area and the Jumping Pound plant, and from the Limestone field to the Caroline plant. Other opportunities include increased sulphur recovery at the Jumping Pound plant and plans to optimize the Waterton plant configuration. The Waterton optimization project involves reconfiguration of the facility to improve cost structure and maximize utilization. The project is in the front-end engineering phase and, if it proceeds, will be completed by the end of 2006.

A successful exploration and development program in 2004 generated enough extensions and discoveries of proved natural gas reserves to replace Foothills annual gas production. Included in the additions are reserves associated with Tay River. As more wells are drilled and a production history is established, Shell expects to book more reserves from the Tay River field. Tay River is the largest discovery in Western Canada in many years, but additional drilling and production information is necessary to determine the full extent of reserves that can be assigned to it.

UNCONVENTIONAL GAS

The E&P business is implementing entry strategies for two unconventional gas business opportunities – basin-centred gas and coalbed methane.

Exploration for basin-centred gas, also referred to as tight gas, targets reservoirs with very low permeability. In 2004, Shell established an initial land position and has a working interest in four wells drilled in the Chinook Ridge and Red Rock areas near the border of Alberta and British Columbia. Two of these wells were successful, one of which was tied in before year-end. Testing was not completed by December 31 on the other two wells. Plans are in place to drill follow-up development wells and conduct further exploratory tests in 2005.

With respect to coalbed methane opportunities, E&P completed test well programs in two areas of British Columbia in 2004. One program of three wells was at Klappan in northwestern British Columbia, the other comprises two wells at Sparwood in the southeast. Following evaluation of the results, the Company will make decisions on further exploration drilling or production piloting in 2005.

22   SHELL CANADA LIMITED EXPLORATION & PRODUCTION (MD&A)

FRONTIER

Sable Offshore Energy Project

SOEP contributes significant cash and earnings to overall E&P performance and accounts for 23 per cent of Shell Canada’s natural gas production. Sales gas production from SOEP averaged 125 mmcf/d (Shell share) in 2004 compared with 135 mmcf/d in 2003. The reduction was due to natural field decline in the project’s Tier 1 fields, which was partially offset by production from the Tier 2 Alma field.

Development of SOEP Tier 2 continued in 2004. The South Venture field started production from one well in December 2004. Two more wells will be drilled in the same field and brought on stream in 2005. A field compression project is under construction and expected to begin operation in 2006.

Shell continues to evaluate opportunities to improve the utilization of the SOEP infrastructure and sustain its financial performance, including tie-in of existing discoveries in the area.

East Coast Exploration

The Company participated in the drilling of the Weymouth deep water well and the shallow water Cree well. Neither well encountered commercial quantities of hydrocarbons and both were abandoned.

In 2002, Shell drilled the Onondaga B-84 exploration well, which encountered a natural gas reservoir in the shallower part of the well. The related costs were capitalized pending evaluation of development options. In the absence of a firm development plan for Onondaga at the end of 2004, the Company wrote off the previously capitalized well costs.

Based on recent drilling results and technical evaluation, Shell relinquished joint venture interests in about 270,000 gross (112,000 net) hectares of exploration licences in the shallow water Sable Basin and 474,000 gross (158,000 net) hectares of exploration licences in the deep water offshore Nova Scotia. The Company will continue to evaluate opportunities, but has no immediate plans for more exploration activity in this area.

A heavy lift vessel transports the topsides for the South Venture platform from Halifax Harbour to its SOEP field location offshore Nova Scotia.

Northwest Territories

Shell continues to work with the other project proponents, including the Aboriginal Pipeline Group, to progress development of the Mackenzie Gas Project. The project includes the 100 per cent Shell-owned Niglintgak field.

The Company has decided to write off the front-end costs for long lead projects that involve a degree of uncertainty in timing and realization of benefits. As a result, the predevelopment costs of the Mackenzie Gas Project moved from capital to expense. Shell will continue to expense these costs until the timing of project startup is more certain. The effect on 2004 earnings was a reduction of $32 million.

In 2004, environmental work, preliminary engineering design, community consultation and commercial negotiations continued. The project reached a key milestone with the filing of the main regulatory applications in October 2004. Shell also filed its development plan application for the Niglintgak field in 2004. The regulatory hearings for the project are expected to start in 2005.

A favourable business environment, support from Aboriginal communities and an efficient regulatory process will be necessary to set the stage for an investment decision. First natural gas production from the Mackenzie Delta is targeted for the end of the decade.

EXPLORATION & PRODUCTION (MD&A) SHELL CANADA LIMITED    23

 EXPLORATION & PRODUCTION (MD&A)

Other Areas

Shell is conducting technical and commercial evaluations in other frontier basins that could provide medium- to long-term growth opportunities. These opportunities include offshore the West Coast, where Shell is the largest landholder. The federal and provincial governments are deliberating on whether or not to lift the existing moratorium on offshore oil and gas activity in this area.

PEACE RIVER

In 2004, bitumen production averaged 8,100 bpd, down by 1,100 bpd from 2003. As part of a plan to increase production to its current plant capacity of 12,000 bpd, drilling of two more pads of wells will begin in 2005. Production from these wells is expected to come on stream in 2006. Shell’s Peace River landholdings have potential for 100,000 bpd of recoverable bitumen for 30 years. Following completion of a strategic review, the Company awarded an engineering services contract for front-end engineering studies to advance planning and assessment of a potential 30,000 bpd expansion of the Peace River operation. Depending on the outcome of this work, construction of an expansion project could start in 2007.

HEALTH, SAFETY, ENVIRONMENT AND
SUSTAINABLE DEVELOPMENT

E&P achieved its best-ever safety performance in 2004 with a recordable injury frequency of 1.16 for every 200,000 hours worked.

Drilling and seismic operations reported a record safety performance in 2004, showing a 30 per cent improvement over 2003. This accomplishment is particularly noteworthy because of a large increase in work activity in this area of the business for both Shell and the industry.

All E&P operating sites are registered to the ISO 14001 environmental management standard. The standard requires demonstration of compliance with environmental legislation and continually improving environmental performance through the application of documented management systems. In 2004, four operating sites were reregistered to ISO 14001. In 2005, as part of the normal three-year renewal process, Shell Canada will be audited and evaluated as a multi-site registrar, since the Company administers its environmental management system similarly across all businesses.

In 2004, the Company conducted health, safety and environmental assessments, sustainability analysis, public consultation and risk assessment as part of its approach to integrating sustainable development into coalbed methane project planning. One outcome of this process was the distribution to interested parties of an information package describing the best practices Shell would adopt in this potential business venture.

2005 GOALS

E&P’s strategy is to pursue profitable investments to sustain and grow production in Canada. The key elements of the strategy are:

§	in the Foothills of Alberta and in British Columbia, continue to focus on operational excellence in existing assets, and explore and develop new opportunities to sustain production;
§	accelerate entry into unconventional gas business positions in basin-centred gas and coalbed methane if early results are encouraging;
§	progress engineering and front-end project design work to evaluate the opportunity to grow production for an initial 30,000 bpd expansion at Peace River; and
§	in the Frontier business, improve the profitability of SOEP; capture the value of discovered volumes onshore Mackenzie Delta by supporting the pipeline development and developing the Niglintgak field; invest in exploration to position Shell in other frontier basins.

24   SHELL CANADA LIMITED EXPLORATION & PRODUCTION (MD&A)

2005 CAPITAL AND EXPLORATION INVESTMENT

The planned investment program for 2005 is $807 million compared with $521 million in 2004. About 40 per cent of the planned expenditures are for growth prospects in frontier areas, as well as for unconventional gas in Western Canada. The balance of the investment program is directed towards ongoing exploration and development opportunities around existing assets.

RISK MANAGEMENT

Organizational Capability

The Company has integrated the E&P People and Skills planning process into its five-year business plan. The plan includes recruitment targets for new graduates and experienced hires, and will assure the development of key skill pools, particularly technical subsurface and project management disciplines.

Major Project Execution

E&P has strengthened the organization’s capacity to develop and execute major projects. For example, the business unit has formed a team to manage the risk of cost overruns and schedule delays on major projects. E&P personnel are also working jointly with Oil Sands employees to improve the depth of project management skills and systems.

Shell Canada has expansion plans for its Peace River in situ bitumen plant in northern Alberta.

Access to Resources

The challenges of exploring for and producing sour gas go beyond technical expertise to include societal expectations and Aboriginal rights and interests, which have the potential to prohibit or curtail access to resources (most notably Crown land). In 2004, E&P appointed a manager and staff of Regulatory Approvals and Compliance to represent Shell in these crucial areas of responsibility.

EXPLORATION & PRODUCTION (MD&A) SHELL CANADA LIMITED    25

In its first full year of integrated operations, Oil Sands made a significant contribution to the Company’s record earnings and cash flow in 2004. Shell Canada, which owns 60 per cent of the Muskeg River Mine and the Scotford Upgrader, reported earnings of $378 million from Oil Sands compared with a loss of $142 million in 2003.

Revenues of $2,072 million in 2004 represented a 129 per cent increase over 2003 revenues of $906 million. Earnings included $19 million related to an insurance settlement, $31 million in tax adjustments and a non-cash charge of $11 million related to changes in the Company’s Long Term Incentive Plan. Oil Sands generated $711 million of cash flow from operations in 2004 compared with $233 million in 2003. Capital expenditures for 2004 totalled $179 million.

Fourth-quarter earnings decreased to $13 million compared with $19 million for the same period in 2003 and were significantly lower than the third quarter of 2004. In addition to the non-cash charge mentioned above, the main reasons for the fourth-quarter earnings decline were the effect of lower volumes and higher expenses, including a $10 million charge related to depreciation expenses for the Scotford Upgrader.

In 2004, the high crude oil prices had a positive effect on the Oil Sands business. Shell realized an average selling price of $44.67 per barrel on sales of 45 million barrels including blend stock. However, the average synthetic crude price realization relative to Edmonton light crude was weaker than anticipated due to additional heavy synthetic volumes in the overall sales mix and wide market differentials for heavy oil.

Unit cash operating costs for the year were $23.32 per barrel. Unit costs had shown continuous improvement over the first nine months of the year, but planned and unplanned maintenance in the fourth quarter had a negative impact. Higher natural gas prices also added to unit costs in 2004. Excluding natural gas, unit cash operating costs were $17.79 per barrel.

The Scotford Upgrader, located just outside the town of Fort Saskatchewan near Edmonton, Alberta, is an important component of Oil Sands integrated operations.

In 2004, Shell achieved a final settlement with insurers for recovery of costs resulting from the January 2003 fire at the Muskeg River Mine. Final proceeds of the settlement were recorded as revenue in the first quarter. Shell continues to pursue claims for loss of profits resulting from production delays caused by the fire.

OPERATIONS

Oil Sands produced 30 million barrels of bitumen in 2004 (Shell share). The mine ramped up production close to the full design rate of 155,000 barrels per day (bpd) in the third quarter and achieved a record monthly production level of 182,000 bpd in August.

Muskeg River Mine

Operational reliability at the mine steadily improved in 2004 as the business resolved technical and mechanical issues and gained operating experience. Most significant was the successful completion of repairs to the froth treatment settlers, which is expected to greatly improve operational performance.

OIL SANDS HIGHLIGHTS

($ millions except as noted)	2004		2003			2002
			(restated)			(restated)
Revenues		2 072		906			3
Earnings		378		(142	)		(5	)
Capital employed		2 860		3 092			3 380
Capital expenditures		179		123			1 460
Return on average capital employed (%)		12.7		(4.4	)		–

Oil Sands (MD&A) SHELL CANADA LIMITED   27

 OIL SANDS (MD&A)

Neil J. Camarta
Senior Vice President, Oil Sands

In 2004, AOSP made good progress toward its long-term goal of producing more than 500,000 bpd of bitumen.

28  SHELL CANADA LIMITED Oil Sands (MD&A)

Scotford Upgrader

The Scotford Upgrader ran well for the first three quarters of 2004, outpacing the availability of bitumen from the mine. However, planned and unplanned maintenance to one of the residual hydrocracker (RHC) units reduced throughput in the fourth quarter. Following planned maintenance work in the first two weeks of October, a catalyst pump in the train 1 RHC failed, requiring a complete shutdown of the unit. RHC1 was moving towards full production early in December, when a leak occurred in one of the aerial coolers. Subsequent inspections showed that five of the coolers on the RHC1 required extensive repairs to ensure the integrity of these assets, extending the shutdown into January. Shell used this as an opportunity to advance other maintenance activities, eliminating a planned turnaround on RHC1 in 2005. Operational factors – not design errors – caused both problems in the fourth quarter. Repairs were completed in January and the upgrader then returned to full, two-train operation.

GROWTH

In 2004, the Athabasca Oil Sands Project (AOSP) made good progress toward its long-term goal of producing more than 500,000 bpd of bitumen from Athabasca oil sands leases. Oil Sands growth plans include expansion of the existing Muskeg River Mine and the Scotford Upgrader, and construction of new facilities on the eastern portion of Shell’s Lease 13 (Jackpine Mine).

In April, the AOSP received provincial and federal government cabinet approvals for Jackpine Mine and continues to work on project development, including feasibility studies and community dialogue.

Shell acquired Athabasca oil sands leases 9 and 17 in July. Located approximately 20 kilometres north of the Muskeg River Mine, Shell estimates that Lease 9 contains about one billion barrels of recoverable bitumen and could support a mine producing up to 100,000 bpd. Additional drilling will be necessary to determine the feasibility of a mining project on Lease 17.

 OIL SANDS (MD&A)

Debottlenecking

Shell advanced short-term plans to increase capacity at both the Muskeg River Mine and Scotford Upgrader by initiating debottlenecking projects to increase throughput to between 180,000 and 200,000 bpd. The Company announced these projects in September 2004 and expects to complete them over the next three years.

Expansions

In addition to the debottlenecking projects underway at the existing plants, plans are in place to expand production from the Scotford Upgrader and Muskeg River Mine by about 90,000 bpd to between 270,000 and 290,000 bpd. The mine expansion would include plans and equipment to recover bitumen from additional areas on leases 13 and 90, plus a new train for bitumen extraction and froth treatment. A third hydroconversion unit and associated utilities would be part of the upgrader expansion.

The preliminary cost estimate for these expansion projects is in the range of $4 billion. Expansion activities are expected to take place between 2006 and 2010 with full production at the expanded facilities planned for 2010.

Environmental and public consultation work, which includes Environmental Impact Assessments for the Scotford Upgrader and Muskeg River Mine expansions, is underway. Shell is working toward filing an application with the Alberta Energy and Utilities Board concerning the proposed expansions in the first half of 2005.

HEALTH, SAFETY, ENVIRONMENT
AND SUSTAINABLE DEVELOPMENT

Oil Sands maintained its excellent safety performance in 2004. The business achieved a lost-time injury frequency rate of 0.18 per 200,000 hours worked, incurring five lost-time incidents, none of which were severe. The total recordable injury frequency rate was 0.78, below the target of 1.0.

The AOSP’s commitment to sustainable development is integrated throughout the life of the project – from design and operations through reclamation.

In 2004, the AOSP became the first oil sands operation to have its environmental management system certified under ISO 14001. ISO 14001 is a voluntary, internationally recognized standard for environmental management systems, applicable to all kinds of industries worldwide. An environmental management system is a systematic approach to identifying and preventing or minimizing environmental impacts in any part of an organization’s activities, products or services.

Continuous improvement is essential to good environmental performance and Shell has produced several new technologies to reduce environmental impacts. These include the use of tailings thickeners and a non-caustic extraction process, both of which increase water recovery from tailings and reduce the volume of water withdrawn from the Athabasca River. The thickeners also reduce heat loss and, therefore, energy consumption.

In 2004, the Company submitted a mandatory greenhouse gas (GHG) report to the Alberta government and early indications are that the project is close to its design emissions targets. Shell’s voluntary commitment to reduce GHG emissions by 50 per cent of initial design (1.75 million tonnes per year) for the Muskeg River Mine and Scotford Upgrader is on track for the 2010 deadline. Oil Sands plans to achieve its GHG reductions through energy efficiency projects at both the Muskeg River Mine and the Scotford Upgrader, the purchase of offsets and, potentially, carbon sequestration.

The AOSP continues to support the communities where its employees live and the joint venture does business. To date, companies in the Regional Municipality of Wood Buffalo have received $179 million for contract services, with $40 million paid to local Aboriginal businesses. The AOSP has also contributed $1 million in community investments.

30  SHELL CANADA LIMITED Oil Sands (MD&A)

2005 GOALS

Oil Sands strategic long-term objectives are to be best in class operationally and to grow the business. In the near term, the key goals towards delivering these objectives are:

§	increase production from the existing operations through improved reliability;
§	reduce unit operating costs by increasing production while cutting absolute costs in key areas, particularly through improved energy efficiency;
§	further improve product quality through hydrocarbon management initiatives at the upgrader;
§	advance both the debottlenecking and expansion activities; and
§	proactively engage with stakeholders and deliver on commitments made to them.

CAPITAL INVESTMENT

Shell has planned capital expenditures for 2005 of $350 million for Oil Sands base business and growth initiatives. Proposed investment includes $135 million for AOSP operations and profitability, including projects to reduce unit costs. Oil Sands will also invest $215 million in growth projects such as debottlenecking and front-end engineering for the 90,000 bpd expansion project.

RISK MANAGEMENT

Organizational Capability

Shell’s ability to implement the Oil Sands business plan, specifically sustaining production, debottlenecking existing operations and profitably expanding the business, depends a great deal upon organizational capability. The key risks are the loss of critical people through attrition and the inability to recruit a sufficient quality and quantity of employees. To mitigate this risk, the Company has developed staffing plans for all expansion needs. It applies rigorous selection criteria and offers competitive remuneration and terms of employment.

Terri Czmuchalek, health, safety and environment coordinator, stands on the world’s largest conveyer at the Muskeg River Mine. The conveyer takes ore from the crushers to the ore silo.

Shell has also initiated several approaches to meet its need for skilled tradespeople, including an agreement with the federal and Alberta governments that they would support Shell’s contractors temporarily hiring foreign nationals if qualified Canadian tradespeople are not available.

Oil Sands Ramp-Up

During the early part of 2004, bringing the Oil Sands facilities up to expected production rates was identified as a risk. Having now demonstrated that the mine and upgrading processes can meet the original design targets, the challenge for Oil Sands is to achieve sustained production and continuously increase it through debottlenecking and improving the reliability of the existing plant.

Commodity Prices and Product Margins

The key risk to the base business is a sustained, low price environment resulting in narrow or negative margins. Oil Sands will mitigate this risk by applying the principles of operational excellence, particularly with respect to reducing costs and optimizing efficiency and reliability.

Oil Sands (MD&A) SHELL CANADA LIMITED   31

Oil Products earnings in 2004 were a record $451 million, a 31 per cent increase over $344 million in 2003. The improvement was due to strong refining margins, exceptionally high prices for benzene and improved feedstock volumes from the integrated Oil Sands operations.

High crude oil and product pricing boosted transaction and distribution costs as did increases in refinery turnaround, labour and maintenance costs. Earnings in 2004 also included a provision of $25 million for increased liability associated with the AIR MILES^® Reward Miles program and a non-cash charge of $30 million relating to changes in the Company’s Long Term Incentive Plan (LTIP).

Fourth-quarter 2004 earnings were $109 million, an increase of $37 million from the $72 million reported for the same period in 2003. Increased operating costs, including the non-cash charges relating to the LTIP, partially offset strong refining margins.

Capital expenditures were $313 million, compared with $194 million in 2003. Most of the increase resulted from construction of facilities to produce ultra-low-sulphur diesel. Oil Products return on average capital employed (ROACE) was 21.3 per cent compared with 17.2 per cent in the previous year.

During the year, Oil Products continued to lead the industry in unit costs, unit profitability and ROACE. The business continues to focus on safely providing quality products and services to customers and operating its refineries reliably supported by steady sales through its marketing divisions.

^® Trademark of AIR MILES International Trading B.V. Used under licence by Loyalty Management Group Canada Inc. and Shell Canada Products.

Construction of the ultra-low-sulphur diesel project at Shell’s Montreal East Refinery is on track for completion in 2006.

MANUFACTURING AND SUPPLY

Shell Canada’s three refineries delivered improved safety and environmental performance in 2004, along with high operational availability (approximately one per cent unplanned downtime) and improved yields and efficiency. This solid operational performance enabled the downstream oil business to capture most of the opportunity for profit offered by the strong refining margins that persisted throughout the year. The Oil Products business also benefited from less expensive feedstock afforded by the integration of the Oil Sands operation with the Scotford Refinery.

Ultra-low-sulphur diesel projects at the Scotford and Montreal East refineries are under construction. These projects are scheduled for completion in early 2006 at a total cost of $400 million. Shell signed a 20-year agreement with Suncor Energy Products Inc. for hydrotreatment of its Sarnia Refinery distillate at a unit to be built at Suncor’s nearby refinery. This will produce ultra-low-sulphur diesel for both companies.

OIL PRODUCTS HIGHLIGHTS

($ millions except as noted)	2004		2003		2002
			(restated)		(restated)
Revenues		8 535		6 855		6 071
Earnings		451		344		197
Capital employed		2 130		2 113		1 887
Capital expenditures		313		194		433
Return on average capital employed (%)		21.3		17.2		10.8

Oil Products (MD&A) SHELL CANADA LIMITED   33

 OIL PRODUCTS (MD&A)

David M. Weston
Senior Vice President, Oil Products

The core focus of the Retail business is to create value for customers through high quality fuels and related offerings with fast and efficient service.

34  SHELL CANADA LIMITED Oil Products (MD&A)

In the second quarter, Montreal East Refinery completed a major 45-day, $23 million turnaround on time and on budget. Work was also completed on a continuous catalytic reformer unit, giving improved yields and efficiencies. Projects completed over the last three years have realized energy savings for Shell Canada’s refineries in the order of seven per cent over the last two years.

RETAIL

The retail gasoline market remained very competitive throughout 2004. Margins were generally compressed and volatile pricing became commonplace in a number of markets. In spite of this pressure, both high volume retailers and traditional competitors increased their presence in the marketplace with new investments and promotional activity in their networks. Increasing crude oil and wholesale prices further compressed margins, as did localized retail price wars. Shell’s retail market share fell slightly in 2004 to average 17.3 per cent from 17.4 per cent in 2003.

Customer Focus

The core focus of the Retail business is to create value for customers through high quality fuels and related offerings with fast and efficient service.

Among the many loyalty programs in the industry, the AIR MILES^® Reward Miles program remains a mainstay of the Shell fuel offering. It has proved highly successful in building a loyal customer base and providing those customers with the opportunity to collect and redeem AIR MILES^® Reward Miles from many different companies across the country.

 OIL PRODUCTS (MD&A)

In addition, Shell has made it even easier for customers to collect AIR MILES^® Reward Miles on fuel and non-fuel purchases through the launch of easyPAY™ inside Shell-branded convenience food stores. This payment method allows customers to link their credit card of choice and their AIR MILES^® collector account to purchases at more than 600 Shell-branded locations, greatly enhancing the speed and efficiency of transactions for Shell customers.

Shell launched its Ready for Business program in 2004 to create and sustain a culture of operational excellence and to provide a consistently positive customer experience. Retail’s Excellence Recognition and Reward program re-energizes Shell’s retailers and continues to assure a high level of customer satisfaction. A third party and “mystery shoppers” monitor the program.

Network

Recent network investment has focused mainly on Greater Toronto, upgrading both the image and the offering of many retail stations in this important market. In 2004, Shell built nine new retail stations across the country and completed 18 image conversions of existing stations. At year-end, there were 1,762 Shell retail sites compared with 1,809 in 2003. Average throughput per site increased to 4.10 million litres in 2004 from 3.97 million litres in 2003.

™ Trademark of Shell Canada Limited. Used under licence by Shell Canada Products.

Shell’s Rotella T has become one of the bestselling heavy-duty multigrade engine oils in North America.

In March 2004, Shell Canada Products announced an agreement with Canadian Tire Petroleum to rebrand and operate 10 Shell non-strategic locations. This innovative approach increased throughput while Shell maintained the fuel supply contract and, at the same time, reinforced the efficiency of the base network.

Non-Petroleum Products and Services

Non-petroleum products and services remain an important component of the Retail business, giving customers both value and convenience. In 2004, there was a slight increase in convenience food store sales as same-store sales rose by about one per cent over 2003. The year proved challenging for car wash sales, which fell 5.5 per cent from the previous year as cold, dry weather reduced demand, and competition for available business intensified.

36  SHELL CANADA LIMITED Oil Products (MD&A)

COMMERCIAL

The Commercial business sells branded products and services to aviation, agricultural, industrial, transportation, resource-based and home-heat sectors, plus private label lubricants to a number of retailers and commercial distributors.

The 2004 business environment was particularly challenging, as high crude oil and product pricing compressed light oil margins in most of these commercial sectors. Globalization, market efficiencies and advances in technology continue to drive consolidation in the marketplace and among Shell’s customers. The Company tries to help its customers meet these competitive challenges by leveraging its technical know-how and strong branding to bring the right solutions to market through appropriate and efficient sales channels. Independent surveys monitored Shell’s customer satisfaction throughout 2004 and reported record results for the year.

Aviation sales grew significantly through 2004 due to increased international and transborder traffic. Shell concluded a number of important contracts with large airline customers throughout the year.

In 2004, Shell upgraded many of its customers to the new FP Solutions™ card, which targets long-haul commercial road transport customers through an extensive network of truck stops and automated refuelling facilities across North America.

In conjunction with Shell Global Solutions International B.V., the Company continues to provide consulting services to industrial customers. This capability leverages Royal Dutch/Shell’s global technical skills, ability and experience.

™ Trademark of FP Solutions Corporation. Used under licence by Shell Canada Products.

Sales of Shell aviation gasoline improved as air traffic increased in 2004.

Agricultural, Small Commercial and Industrial

In 2004, Shell Canada Products entered into a new relationship with Finning (Canada) that will transform Shell’s traditional Commercial agricultural and small industrial business in Alberta and British Columbia. Finning has become Shell’s local authorized distributor, offering quality Shell-branded fuels and lubricants alongside Finning’s range of equipment-related products and services – an offer unmatched by others in the industry. Implementation of this arrangement, which began in 2004, will continue in 2005.

Discussions and negotiations are underway with other parties in different parts of Canada to make Shell-branded products more readily available to these important sectors.

Oil Products (MD&A) SHELL CANADA LIMITED   37

 OIL PRODUCTS (MD&A)

Lubricants

Lubricants blending and packaging volumes at the Brockville plant continued to increase in 2004. The relationship with Pennzoil-Quaker State Canada (an affiliate of Royal Dutch/ Shell) continues to grow and strengthen as the companies work together to lower supply chain and distribution costs as well as increase market share. The agreement also strengthens front-line support to existing and new customers and channels outlets for both Shell- and Pennzoil-Quaker-State-branded lubricants.

Branded lubricant sales, particularly Shell’s brand-led products such as Rotella T, increased in an otherwise flat to declining market. In 2004, Shell Canada reached agreement with the global aviation business of Royal Dutch/Shell to blend and package Aeroshell piston engine oils and greases for North America from its Brockville and Calgary lubricants plants.

E-Business

Oil Products continued to introduce electronic applications and business processes where the speed and reach of the Internet can improve efficiency and cost-effectiveness while improving communication with customers, suppliers, marketing associates, governments and employees. Among other initiatives in 2004 was the launch of Shell eStream™, which allows commercial customers the ability to manage every aspect of their purchase process online.

™ Trademark of Shell Canada Limited. Used under licence by Shell Canada Products.

HEALTH, SAFETY, ENVIRONMENT AND
SUSTAINABLE DEVELOPMENT

In 2004, both the Scotford and Sarnia refineries achieved two million hours worked without a lost-time incident. Montreal East Refinery recorded four million hours, a significant accomplishment, particularly given a high level of turnaround activity.

Oil Products reported a combined employee and contractor lost-time incident frequency rate of 0.13 per 200,000 hours worked, which was a great improvement over the prior year. The frequency rate for total recordable injuries was 1.07, also an improvement over the 1.11 recorded in 2003. This was the business unit’s best safety record in the last six years as Shell Canada Products strives for improved health, safety and environment (HSE) performance. Areas of focus in 2005 will include enhancements to the HSE management system, initiatives to improve the safety culture, risk management reviews and incident investigations, system upgrades and improved contractor management processes.

Although the business did not meet its spill frequency target in 2004, none of the spills damaged the external environment. Shell Canada Products was proud to receive an environmental award from the Department of National Defence for Shell’s involvement in the cleanup of 46 former military service station sites.

In 2004, Shell Canada’s three refineries developed social performance plans, which address the safety and well-being of employees, contractors and neighbours. The plans also include a framework for communicating and working with Shell’s stakeholders, as well as programs that support the Company’s commitment to benefit communities.

The 2005 capital investment plan includes energy reduction projects at Sarnia and Montreal East refineries. These projects and other strategic initiatives will reduce both greenhouse gas and sulphur emissions from the refineries, a long-standing commitment of Shell Canada Products.

38  SHELL CANADA LIMITED Oil Products (MD&A)

2005 GOALS

Oil Products integrated strategy emphasizes the need to:

§	balance long-term shareholder value and competitive performance;
§	deliver high, reliable, efficient and safe manufacturing throughput supported by secure branded sales;
§	retain sales volumes through operational excellence within existing marketing channels and pursue opportunities to leverage synergies and create value through alliances;
§	deliver capital projects safely, on time and within budget;
§	provide a quality-assured, differentiated, fuel-centred offering, delivering the promise of the Shell brand; and
§	improve information technology to provide system-to-system communication with customers and alliances as well as increased productivity.

CAPITAL INVESTMENT

Oil Products planned capital expenditure for 2005 is $483 million, up from $313 million in 2004. Of this total, approximately 50 per cent is budgeted for the completion of the ultra-low-sulphur diesel projects. Half of the remainder will be invested in growth projects in both the manufacturing and marketing businesses, with the balance targeted for maintenance of the existing assets.

New facilities for the production of ultra-low-sulphur diesel at Montreal East Refinery (above) and Scotford Refinery represent a significant investment for Shell Canada.

RISK MANAGEMENT

Brand and Corporate Reputation

A strong brand is the foundation of Shell Canada’s profile in the community. Deterioration of brand value and loss of market share are key risks to be managed. The quality assurance process used to protect the Shell brand and corporate reputation for all fuel products in the market mitigates these risks. Oil Products has also strengthened its focus on consistency of the retail visual image standard and established a product application and quality assurance group to deliver start-to-finish product quality management processes.

Oil Products (MD&A) SHELL CANADA LIMITED   39

FINANCING ACTIVITIES

Shell’s financing program includes short-term commercial paper, medium-term notes and accounts receivable securitization. This combination provides cost-effective financing and repayment flexibility.

Record cash flows in 2004 allowed the Company to greatly reduce the combined level of debt and accounts receivable sales to $287 million from $1,466 million at the end of 2003. Shell repaid $149 million in commercial paper, leaving a zero balance at year-end, and repaid $598 million in medium-term notes, which reduced the balance to $134 million at year-end. The Company also reduced sales of receivables by $431 million to a balance of $150 million at December 31, 2004. The $1.5 billion commercial paper program and $600 million accounts receivable securitization program remain available to the Company.

Strong cash flow has enabled Shell to undertake major capital expenditure programs such as the
Athabasca Oil Sands Project.

All of Shell’s financing costs in 2004 were based on floating interest rates. Interest and other financing charges totalled $26 million compared with $66 million in 2003. Reductions in debt financing and accounts receivable sales during the year resulted in lower financing charges. Shell continued to benefit from attractive financing rates, which averaged around 2.5 per cent in 2004.

The reduction in the combined level of debt and accounts receivable sales further strengthened Shell’s financial position. The Company expects that cash flow from operations will be enough to fund its $1.8 billion 2005 capital program. The Company enjoys ready access to short-term debt capital markets in Canada and can obtain access to longer-term debt capital markets in both Canada and the United States should the need arise.

CONTRACTUAL OBLIGATIONS ($ millions)			Payment due by period
	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Long-term debt		134		134		–		–		–
Capital lease obligations		3		2		1		–		–
Operating leases		570		88		142		216		124
Purchase obligations		10 055		847		1 663		1 366		6 179
Other long-term obligations		–		–		–		–		–
Total		10 762		1 071		1 806		1 582		6 303

Corporate (MD&A) SHELL CANADA LIMITED   41

 CORPORATE (MD&A)

In April 2004, Shell Canada announced its intention to make a normal course issuer bid to repurchase for cancellation up to one per cent of its 275,287,340 common shares issued and outstanding as at April 27, 2004. The bid began on May 4, 2004, and will end on or before May 3, 2005. The bid is being used to counter dilution resulting from the issuance of common shares under Shell Canada’s employee stock option program. In 2004, a total of 783,800 common shares had been repurchased at market prices for a cost of $54 million, and cancelled.

Under an earlier normal course issuer bid, which commenced February 7, 2003, and ended February 6, 2004, Shell Canada repurchased 1,528,000 common shares at a total cost of $80 million, which includes $9 million of common shares repurchased in 2004.

On April 19, 2004, Standard & Poor’s Ratings Services (S&P) lowered its long-term corporate credit ratings on Shell Canada Limited from AA+ to AA. On February 4, 2005, S&P lowered its long-term corporate credit rating on Shell Canada from AA to AA-. These moves by S&P followed similar actions taken on the ratings of the Company’s majority shareholder, Royal Dutch/Shell. According to S&P, Shell Canada’s ratings are directly linked to those of its majority shareholder. As a result, any rating action taken against its majority shareholder affects the ratings of Shell Canada. These changes in S&P credit rating status have not affected the Company’s ability to access capital markets.

OUTSTANDING SHARES

At February 28, 2005, the Company had 275,060,662 common shares and 100 preference shares outstanding. There are 7,892,529 employee stock options outstanding at February 28, 2005, of which 4,095,459 are exercisable.

PENSION PLAN

Shell Canada bases its pension calculations on long-term rates of return. In 2004, Shell reduced its assumed long-term rate of return to 7.25 per cent from 7.5 per cent to reflect the expected market performance of plan assets. Also in 2004, the Company made cash contributions totalling $110 million to its defined benefit plan, which included a voluntary additional contribution of $60 million in the fourth quarter to help reduce the pension deficit.

STOCK-BASED COMPENSATION ACCOUNTING

At the annual and special meeting of shareholders in April 2004, shareholders approved various amendments to the Long Term Incentive Plan (LTIP). These amendments included, among others, increasing the number of common shares that may be reserved for issue under the LTIP by an additional 9,000,000 common shares and permitting the return of stock option shares to the LTIP upon the exercise of share appreciation rights (SARs). Under the amended LTIP, an option is surrendered when a SAR is exercised for cash, which reduces both share dilution and the need for future normal course issuer bids to counter dilution.

The attachment of SARs changes the basis for determining the required accounting expense for benefits under the LTIP. The Company’s obligation is recognized based on the market value of the common shares less the exercise price of outstanding options.

In September 2004, the Board approved a proposal to attach SARs to existing employee stock options granted but not exercised. The majority of option holders accepted this proposal, which became effective December 6, 2004. This resulted in an initial non-cash charge of $71 million after-tax to fourth-quarter 2004 earnings to reflect gains accrued to date on outstanding options. Starting in the first quarter of 2005, the Company’s expense for benefits under the LTIP will be mark-to-market and charged to earnings each quarter.

Corporate (MD&A) SHELL CANADA LIMITED   43

CORPORATE (MD&A)

ACCOUNTING STANDARDS

Variable Interest Entities

In June 2003, the Accounting Standards Board issued Accounting Guideline 15, “Consolidation of Variable Interest Entities,” to be effective for the first interim or annual reporting period beginning on or after November 1, 2004. The standard mandates that certain entities should be consolidated by the primary beneficiary. Under the standard, restatement of prior periods is not required.

The Corporation has adopted this standard prospectively effective the first quarter of 2005. Accordingly, the Corporation will consolidate in the first quarter a lease arrangement for large mobile equipment (trucks, scrapers and shovels) used at the Athabasca Oil Sands Project’s Muskeg River Mine. The dollar amount for this equipment at year-end was $232 million. This arrangement is currently accounted for as an operating lease.

To secure attractive leasing terms on the mobile equipment lease, a guarantee has been provided to the lessor, which is payable when the equipment is returned to the lessor. At December 31, 2004, the Corporation’s share of the maximum payable under the guarantee was $118 million. Any proceeds received from the sale of the equipment would offset any payment required under the guarantee. The guarantee is in place for the term of the equipment lease, which will continue for the next one to six years, depending on the equipment.

In 2004, Shell Canada sold accounts receivable to an unrelated multi-seller trust under its accounts receivable securitization program. After receipt of the cash proceeds, the Company removed this amount from its balance sheet and relinquished all ownership in the sold receivables as part of the sale. Under the United States Financial Accounting Standards Board and Canadian Institute of Chartered Accountants standards, this program does not require consolidation because the Company is not the primary beneficiary of the multi-seller trust.

Asset Retirement Obligations

Effective January 1, 2004, the Corporation adopted the new Canadian accounting standard with respect to asset retirement obligations. Under the new standard, legal obligations associated with the retirement of tangible long-lived assets are recorded as liabilities. The liabilities are calculated using the net present value of the cash flows required to settle the obligations. A corresponding amount is capitalized to the related assets. Asset retirement costs are charged to earnings over the life of the assets.

Shell applied the new standard retroactively and restated financial statements of prior periods. The impact of this change on the December 31, 2004, consolidated balance sheet was an increase in property, plant and equipment of $74 million, an increase in asset retirement and other long-term obligations of $205 million, a reduction in future income taxes of $44 million and a reduction in retained earnings of $87 million. This new standard did not have a material impact on the Corporation’s earnings.

Hedging Relationships

Effective January 1, 2004, Shell Canada adopted Accounting Guideline 13, “Hedging Relationships.” This pronouncement establishes the criteria that must be met before an entity can apply hedge accounting to certain derivative financial instruments. This guideline has been applied on a prospective basis and did not have a material impact on the Corporation’s earnings.

44  SHELL CANADA LIMITED Corporate (MD&A)

CRITICAL ACCOUNTING ESTIMATES

In the compilation of the financial statements, some estimates reflect management’s best judgments. These estimates are based on historical experience and other factors that management deems appropriate. The Audit Committee of the Board of Directors reviews annually any significant changes in estimates. The following summary outlines the critical accounting estimates made by Shell management and should be read in conjunction with the “Accounting Policies” on pages 52 to 55 of the Notes to Consolidated Financial Statements.

Hydrocarbon Reserves

Reserves quantities are estimated in accordance with established guidelines of the Canadian securities regulators, United States Financial Accounting Standards Board and United States Securities Exchange Commission for conventional oil and gas and minable bitumen reserves. Determination of reserves within these guidelines is based on established geological and engineering principles and involves interpretation of geological data. Estimates are subject to revision as additional exploration and development data is collected and new information regarding producing operations and technology becomes available. Revisions could also occur as economic and operating conditions change, or as properties are divested or acquired. Although there is a reasonable certainty of recovering proved reserves, they are based on estimates that are subject to some variability.

Revisions to reserves estimates will affect the depreciation and depletion on Exploration & Production and Oil Sands assets that are provided on the unit-of-production basis.

Asset Retirement Obligations

Asset retirement obligations and other environmental liabilities are based on commercial engineering estimated costs and historical experience. Calculations take into account the anticipated method and extent of remediation consistent with legal requirements, current technology and the possible use of the location. Since these estimates are specific to the locations involved, there are many individual assumptions underlying the Company’s total asset retirement obligations and provision for other environmental liabilities. Significant changes to the assumptions behind these estimates and the timing may result in material changes to the obligation.

Asset retirement obligations are discounted using a credit-adjusted risk-free rate. Payments to settle these obligations occur on an ongoing basis and will continue over the life of the operating assets, which can exceed 25 years. The discount rate on incremental asset retirement obligation estimates will be adjusted as appropriate to reflect long-term changes in market rates and outlook.

Employee Future Benefits

An actuary determines Shell’s costs of pension and other retirement benefits using the projected benefit method. The calculation takes into account length of service and estimates of expected plan investment performance, salary increases, expected health care costs and the discount rate for the benefit obligation. Senior management reviews key pension assumptions annually and third party actuaries review them at least every three years. The assumed long-term rate of return used in 2004 was 7.25 per cent compared with an average of actual returns of 10.0 per cent annually over the last 10 years ending December 31, 2004. Shell’s exposure to changes in the underlying assumptions is summarized on page 67 of the Notes to Consolidated Financial Statements. The obligation and expense could increase or decrease if there were to be a change in these estimates. Pension expense represented less than one per cent of Shell’s total expenses in 2004.

Corporate (MD&A) SHELL CANADA LIMITED   45

CORPORATE (MD&A)

RELATED PARTY TRANSACTIONS

In the course of regular business activities, Shell Canada enters into transactions with related parties, including affiliates of Royal Dutch/Shell. The products sold to affiliates include natural gas, petroleum products, chemicals and services. The main product purchased from affiliates is crude oil. All transactions are at commercial rates.

In December 2004, Shell Canada acquired an affiliate of Royal Dutch/Shell for $39 million. This transaction will result in beneficial tax consequences for Shell Canada.

TECHNOLOGY AND ASSET INTEGRITY

Technology experts provide technical and engineering support to secure the best possible performance from Shell’s assets and new business opportunities. Access to Royal Dutch/Shell’s worldwide research and technical support capabilities augments Shell Canada’s capabilities.

Shell regularly assesses asset integrity by reviewing management systems and conducting health, safety and environment and integrity assurance audits of the Company’s various facilities. These assessments in 2004 indicated an overall improvement compared with previous years.

RISK MANAGEMENT

Financial Risks

Currency risk increases when foreign currency rates fluctuate compared with the Canadian dollar. The risk grows in proportion to the volume of activity involving foreign currency. Shell makes some commodity transactions priced in another currency, mainly U.S. dollars. Netting foreign cash flows across the various businesses each month helps reduce the effect of these fluctuations for the Company overall. Shell Canada hedges significant foreign currency commitments on major capital projects.

Interest rate fluctuations affect Shell’s total interest expense. The strength of the Company’s balance sheet allowed it to continue with 100 per cent floating interest rate exposure in 2004.

To reduce the financial risk resulting from potential incidents, the Company purchases appropriate insurance against risks associated with all its operations and projects.

46  SHELL CANADA LIMITED Corporate (MD&A)

MANAGEMENT’S REPORT

To the Shareholders of Shell Canada Limited

The management of Shell Canada Limited is responsible for the preparation of all information included in this Annual Report. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on management’s informed judgments and estimates. Financial information included elsewhere in this Annual Report is consistent with the consolidated financial statements.

To assist management in fulfilling its responsibilities, a system of internal accounting controls has been established to provide reasonable assurance that the consolidated financial statements are accurate and reliable and that assets are safeguarded. Management believes that this system of internal control has operated effectively for the year ended December 31, 2004.

PricewaterhouseCoopers LLP, Chartered Accountants, appointed by the shareholders, have audited the financial statements and conducted a review of internal accounting policies and procedures to the extent required by generally accepted auditing standards and performed such tests as they deemed necessary to enable them to express an opinion on the consolidated financial statements.

The Board of Directors, through its Audit Committee, is responsible for ensuring that management fulfills its financial reporting responsibilities. The Audit Committee is composed of independent directors who are not employees of the Corporation. The committee reviews the financial content of the Annual Report and meets regularly with management, internal audit and PricewaterhouseCoopers LLP to discuss internal controls, accounting, auditing and financial matters. The committee recommends the appointment of the external auditors. The committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders.

Clive Mather	Cathy L. Williams	Donna Tarka
President and Chief Executive Officer	Chief Financial Officer	Controller

January 31, 2005

Management’s Report SHELL CANADA LIMITED   47

AUDITORS’ REPORT

To the Shareholders of Shell Canada Limited

We have audited the consolidated balance sheets of Shell Canada Limited as at December 31, 2004, 2003 and 2002 and the consolidated statements of earnings and retained earnings and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004, in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Calgary, Alberta

January 31, 2005

48  SHELL CANADA LIMITED Auditor’s Report

CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS

Year ended December 31 ($ millions)	2004			2003		2002
				(restated)		(restated)
REVENUES
Sales and other operating revenues		11 228			9 076		7 468
Dividends, interest and other income		60			41		82
Total revenues		11 288			9 117		7 550
EXPENSES
Cost of goods sold		6 068			5 077		4 661
Operating, selling and general		2 048			1 771		1 233
Transportation (Note 1)		309			270		236
Exploration and predevelopment		230			88		123
Depreciation, depletion, amortization and retirements		722			637		388
Interest on long-term debt		16			31		19
Other interest and financing charges		10			35		30
Total expenses		9 403			7 909		6 690
EARNINGS
Earnings before income tax		1 885			1 208		860
Current income tax		617			188		135
Future income tax		(18	)		210		170
Total income tax (Note 4)		599			398		305
Earnings		1 286			810		555
Per common share (dollars) (Note 13)
Earnings – basic		4.68			2.95		2.01
Earnings – diluted		4.64			2.92		2.00
RETAINED EARNINGS
Balance at beginning of year		5 045			4 529		4 268
Implementation of accounting standard (Note 1)		–			–		(73	)
Earnings		1 286			810		555
		6 331			5 339		4 750
Common shares buyback (Note 3)		61			68		–
Dividends		259			226		221
Balance at end of year		6 011			5 045		4 529

Consolidated Financial Statements SHELL CANADA LIMITED   49

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 31 ($ millions)	2004			2003			2002
				(restated)			(restated)
CASH FROM OPERATING ACTIVITIES
Earnings		1 286			810			555
Exploration and predevelopment		230			88			123
Non-cash items Depreciation, depletion, amortization and retirements		722			637			388
Stock-based compensation		141			12			–
Future income tax		(18	)		210			170
Other items		(11	)		(10	)		(9	)
Cash flow from operations		2 350			1 747			1 227
Movement in working capital and operating activities
Sales of accounts receivable securitization		(431	)		61			170
Other working capital items		349			(24	)		16
		2 268			1 784			1 413
CASH INVESTED
Capital, exploration and predevelopment expenditures		(1 021	)		(759	)		(2 289	)
Movement in working capital from investing activities		(7	)		(25	)		(67	)
		(1 028	)		(784	)		(2 356	)
Proceeds on disposal of properties, plant and equipment		4			25			3
Investments, long-term receivables and other		(87	)		(36	)		(87	)
		(1 111	)		(795	)		(2 440	)
CASH FROM (USED IN) FINANCING ACTIVITIES
Common shares buyback (Note 3)		(63	)		(71	)		–
Proceeds from exercise of common share stock options		37			15			10
Dividends paid		(259	)		(226	)		(221	)
Long-term debt and other		(596	)		(185	)		804
Short-term financing		(149	)		(522	)		459
		(1 030	)		(989	)		1 052
Increase in cash		127			–			25
Cash at beginning of year		–			–			(25	)
Cash at end of year1		127			–			–
Supplemental disclosure of cash flow information
Dividends received		14			10			15
Interest received		28			18			35
Interest paid		28			70			45
Income tax paid		303			271			285

¹ Cash comprises cash and highly liquid short-term investments.

50  SHELL CANADA LIMITED Consolidated Financial Statements

CONSOLIDATED BALANCE SHEET

As at December 31 ($ millions)	2004		2003		2002
			(restated)		(restated)
ASSETS
Current assets
Cash and short-term investments		127		–		–
Accounts receivable		1 213		495		497
Inventories
Crude oil, products and merchandise		501		497		440
Materials and supplies		83		83		75
Prepaid expenses		85		81		93
Future income tax (Note 4)		314		65		86
		2 323		1 221		1 191
Investments, long-term receivables and other		549		455		414
Properties, plant and equipment (Note 2)		8 034		7 937		7 912
Total assets		10 906		9 613		9 517
LIABILITIES
Current liabilities
Short-term borrowings		–		149		671
Accounts payable and accrued liabilities and other		1 683		1 157		1 223
Income and other taxes payable		657		255		115
Current portion of asset retirement and other long-term obligations		35		17		19
Current portion of long-term debt		136		734		402
		2 511		2 312		2 430
Asset retirement and other long-term obligations (Note 7)		417		395		389
Long-term debt (Note 6)		1		2		523
Future income tax (Note 4)		1 448		1 366		1 177
Total liabilities		4 377		4 075		4 519
Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITY
Capital stock (Note 3)
100 4% preference shares		1		1		1
275 242 562 common shares
(2003 – 275 042 159; 2002 – 275 908 290)		517		480		468
		518		481		469
Contributed surplus (Note 3)		–		12		–
Retained earnings		6 011		5 045		4 529
Total shareholders’ equity		6 529		5 538		4 998
Total liabilities and shareholders’ equity		10 906		9 613		9 517

The consolidated financial statements have been approved by the Board of Directors.

Clive Mather	Kerry L. Hawkins
Director	Director

Consolidated Financial Statements SHELL CANADA LIMITED   51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Shell Canada’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada. The Corporation’s major accounting policies are summarized as follows:

NOTE 1. ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Shell Canada Limited and its subsidiary companies. The financial statements reflect the Corporation’s proportionate interests in joint ventures.

INVENTORIES

Inventories of crude oil, products and merchandise are stated at the lower of cost, applied on the Last-In, First-Out (LIFO) basis, or net realizable value. Materials and supplies are stated at the lower of cost or estimated useful value.

INVESTMENTS

Investments in companies over which Shell Canada exercises significant influence are accounted for using the equity method. Accordingly, the book value of the investment in such companies equals the original cost of the investment, plus Shell Canada’s share of earnings since the investment date, less dividends received. Other long-term investments are recorded at cost. Short-term investments are carried at the lower of cost or market value and are highly liquid securities with a maturity of three months or less when purchased.

EXPLORATION AND DEVELOPMENT COSTS

The Corporation follows the successful efforts method of accounting for oil and gas exploration and development activities. Under this method, acquisition costs of properties are capitalized. Exploratory drilling costs are initially capitalized and costs relating to wells subsequently determined to be unsuccessful are charged to earnings. Exploratory drilling costs related to exploratory wells in an area that requires major capital expenditures are carried as an asset, provided that i) there have been sufficient oil and gas reserves found to justify completion as a producing well if the required capital expenditure is made, and ii) drilling of additional exploratory wells is underway or firmly planned for the near future. Other exploration costs are charged to earnings. All development costs are capitalized. For mining activities the property acquisition, exploration and development costs are capitalized.

DEPRECIATION, DEPLETION AND AMORTIZATION

Depreciation and depletion on oil and gas and mining assets are provided on the unit-of-production basis. Land and lease costs relating to producing properties and costs of gas plants are depleted and depreciated over remaining proved reserves. Oil and gas and mine development costs are depleted and depreciated over remaining proved developed reserves. The mine extraction plant and other facilities are depreciated over remaining proved and probable reserves. Amortization of unproved oil and gas properties is based on the estimated life of the asset and past experience. Costs relating to refinery, upgrader, mine equipment, mine and upgrader preproduction, distribution, marketing and non-resource assets are depreciated on the straight-line basis over each asset’s estimated useful life.

52  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

ASSET RETIREMENT OBLIGATIONS

Legal obligations associated with site restoration on the retirement of assets with determinable useful lives are recognized when they are incurred, which is typically at the time the assets are installed. The obligations are initially measured at fair value and discounted to present value. A corresponding amount equal to that of the initial obligation is added to the capitalized costs of the related asset. Over time, the discounted asset retirement obligation amount will be accreted for the change in its present value, and the initial capitalized costs will be depreciated over the useful lives of the related assets.

Asset retirement obligations and other environmental liabilities are based on commercial engineering estimated costs and historical experience, taking into account the anticipated method and extent of remediation consistent with legal requirements and current technology.

INTEREST

Interest costs are expensed as incurred.

REVENUES

Revenues are recognized upon delivery. Inter-segment sales, which are accounted for at estimated market-related values, are included in revenues of the segment making the transfer. On consolidation, such inter-segment sales and any associated estimated profits in inventory are eliminated.

ROYALTIES AND MINERAL TAXES

All royalty entitlements and mineral taxes are reflected as reductions in sales and other operating revenues.

EMPLOYEE FUTURE BENEFITS

The costs of the defined benefit pension plan and other retirement benefits are actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at a market-related value. The excess of the net actuarial gain or loss over 10 per cent of the greater of the benefit obligation and the market-related value of plan assets is amortized over the expected average remaining service period of active employees. The cost of the Company’s portion of the defined contribution pension plan is expensed as incurred.

FOREIGN CURRENCY TRANSLATION

Monetary items are translated to Canadian dollars at rates of exchange in effect at the end of the period. The gains and losses on the translation of foreign denominated monetary items are charged to earnings.

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   53

DERIVATIVE INSTRUMENTS

The Company uses derivative instruments in the management of its foreign currency, interest rate and commodity price exposures. The Company does not use derivative instruments for speculative purposes.

Derivative instruments that do not qualify as hedges, or are not designated as hedges, are recorded using the mark-to-market method of accounting, whereby derivative instruments are recorded on the Company’s balance sheet as either an asset or liability with changes in fair value recorded to net earnings.

Foreign exchange contracts are used to hedge certain foreign purchases and sales. Those foreign exchange contracts are revalued at the exchange rate in effect at the end of each reporting period. Foreign exchange gains and losses are recognized in earnings.

Interest rate swaps are mark-to-market and used to manage interest rate exposure. Differentials under interest rate swap arrangements are recognized by adjustments to interest expense.

Energy futures are used to reduce exposure to price fluctuations in some contractual energy purchases and sales. Those energy futures are mark-to-market at the end of each reporting period with the changes recognized in earnings.

USE OF ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates used in the preparation of these financial statements include the estimate of proved and probable reserves, asset retirement obligations and employee future benefits.

STOCK-BASED COMPENSATION PLANS

The Corporation has stock-based compensation plans, which are described in Note 3. For options under the Long Term Incentive Plan (LTIP) that have share appreciation rights attached to them, a liability for expected cash settlements is accrued over the vesting period of the options based on the difference between the exercise price of the options and the market price of the Company’s common shares. The liability is revalued at the end of each reporting period to reflect changes in the market price of the Company’s common shares and the net change is recognized in earnings. When options are surrendered for cash, the cash settlement reduces the outstanding liability. When options are exercised for common shares, consideration paid by the option holders and the previously recognized liability associated with the option are recorded as share capital.

For options that do not have share appreciation rights attached to them, stock-based compensation is accounted for using the Black-Scholes valuation method. The Company records compensation expense over the vesting period for stock options granted to employees. Any consideration paid by employees on exercise of stock options or purchase of stock is credited to share capital. No compensation expense has been recorded for awards granted prior to 2003.

54  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

CHANGE IN ACCOUNTING POLICY

Asset Retirement Obligations

Effective January 1, 2004, the Corporation adopted the new Canadian accounting standard with respect to asset retirement obligations. Under the new standard, legal obligations associated with the retirement of tangible long-lived assets are recorded as liabilities. The liabilities are calculated using the net present value of the cash flows required to settle the obligation. A corresponding amount is capitalized to the related asset. Asset retirement costs are charged to earnings over the life of the asset.

The new standard has been applied retroactively and financial statements of prior periods have been restated. The impact of this change on the December 31, 2004, Consolidated Balance Sheet is an increase in properties, plant and equipment of $74 million (2003 – $71 million; 2002 – $76 million), an increase in asset retirement and other long-term obligations of $205 million (2003 – $191 million; 2002 – $196 million), a reduction in future income taxes of $44 million (2003 – $41 million; 2002 – $41 million) and a reduction in retained earnings of $87 million (2003 – $79 million; 2002 – $79 million). This new standard did not have a material impact on the Corporation’s earnings.

Derivative Instruments

Effective January 1, 2004, the Corporation adopted Accounting Guideline 13, “Hedging Relationships.” This pronouncement establishes the criteria that must be met before an entity can apply hedge accounting to certain derivative financial instruments. The Corporation currently does not use hedge accounting for any of its foreign exchange, interest rate swaps or energy futures. These contracts are mark-to-market and recorded in the accounts. This guideline has been applied on a prospective basis and did not have a material impact on the Corporation’s earnings.

RECLASSIFICATION

Effective January 1, 2004, and consistent with the adoption of Canadian Institute of Chartered Accountants (CICA) Handbook Section 1100, transportation costs for the Exploration & Production segment charged to customers are classified as revenues with the related transportation cost classified as transportation expense. Previously, these costs were netted against revenue. Transportation costs for the Oil Sands and Oil Products segments continue to be reported as cost of goods sold or operating expense, consistent with prior years.

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

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   55

NOTE 2. SEGMENTED INFORMATION

The operating segments are those adopted by senior management of the Corporation to determine resource allocations and assess performance. In all material respects, the segmented information is applied consistently in accordance with the Corporation’s significant accounting policies. The Corporation’s revenues are attributed principally to Canada where all of its major properties, plants and equipment are located.

Segmented financial results and properties, plant and equipment data are reported as if the segments were separate entities.

EARNINGS ($ millions)

			TOTAL
2004			2003			2002
			(restated)			(restated)
	1 306			1 354			920		Natural gas
	716			597			574		Natural gas liquids
	1 024			467			77		Crude oil and bitumen
	(364	)		(354	)		(234	)	Royalties
	3 615			3 074			2 848		Gasolines
	3 047			2 374			1 984		Middle distillates
	1 600			1 293			1 060		Other products
	344			312			321		Other revenues
	–			–			–		Inter-segment sales
	11 288			9 117			7 550		Total revenues
	6 068			5 077			4 661		Cost of goods sold
	–			–			–		Inter-segment purchases
	2 048			1 771			1 233		Operating, selling and general
	309			270			236		Transportation
	230			88			123		Exploration and predevelopment
	722			637			388		Depreciation, depletion, amortization and retirements
	16			31			19		Interest on long-term debt
	10			35			30		Other interest and financing charges
	9 403			7 909			6 690		Total expenses
	1 885			1 208			860		Earnings (loss) before income tax
	617			188			135		Current income tax
	(18	)		210			170		Future income tax
	599			398			305		Total income tax
	1 286			810			555		Earnings (loss)

56  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

The Corporation has the following segments:

Exploration & Production includes exploration, production and marketing activities for natural gas, natural gas liquids, in situ bitumen and sulphur.

Oil Sands includes mining and extraction of bitumen, upgrading of mined bitumen to synthetic crude oils and marketing of these products.

Oil Products includes the manufacturing, distribution and selling of the Corporation’s refined petroleum products.

Corporate includes controllership, financing activities, administration and general corporate facility management.

EXPLORATION & PRODUCTION								OIL SANDS									OIL PRODUCTS								CORPORATE
2004		2003			2002			2004			2003			2002			2004			2003		2002			2004			2003			2002
		(restated)			(restated)						(restated)			(restated)						(restated)		(restated)						(restated)			(restated)
1 306			1 354			920			–			–			–			–			–		–			–			–			–
716			597			574			–			–			–			–			–		–			–			–			–
77			81			74			947			386			3			–			–		–			–			–			–
(355	)		(350	)		(234	)		(9	)		(4	)		–			–			–		–			–			–			–
–			–			–			–			–			–			3 615			3 074		2 848			–			–			–
–			–			–			–			–			–			3 047			2 374		1 984			–			–			–
329			268			165			–			46			–			1 271			979		895			–			–			–
41			28			39			32			–			–			216			218		236			55			66			46
84			135			82			1 102			478			–			386			210		108			–			–			–
2 198			2 113			1 620			2 072			906			3			8 535			6 855		6 071			55			66			46
–			–			–			544			306			(1	)		5 525			4 767		4 665			(1	)		4			(3	)
159			148			104			283			146			1			1 130			529		82			–			–			3
422			364			333			542			478			3			1 029			893		870			55			36			27
309			270			236			–			–			–			–			–		–			–			–			–
230			88			123			–			–			–			–			–		–			–			–			–
357			282			222			171			158			1			193			196		164			1			1			1
–			–			–			–			–			–			–			–		–			16			31			19
–			–			–			–			–			–			–			–		–			10			35			30
1 477			1 152			1 018			1 540			1 088			4			7 877			6 385		5 781			81			107			77
721			961			602			532			(182	)		(1	)		658			470		290			(26	)		(41	)		(31	)
385			382			215			16			(253	)		(193	)		249			95		134			(33	)		(36	)		(21	)
(113	)		(40	)		5			138			213			197			(42	)		31		(41	)		(1	)		6			9
272			342			220			154			(40	)		4			207			126		93			(34	)		(30	)		(12	)
449			619			382			378			(142	)		(5	)		451			344		197			8			(11	)		(19	)

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   57

NOTE 2. SEGMENTED INFORMATION (continued)

CASH FLOW ($ millions)

			TOTAL
2004			2003			2002
			(restated)			(restated)
	2 350			1 747			1 227		Cash flow from operations
	(82	)		37			186		Movement in working capital and operating activities
	2 268			1 784			1 413		Cash from operating activities
	(1 021	)		(759	)		(2 289	)	Capital, exploration and predevelopment expenditures
	(7	)		(25	)		(67	)	Movement in working capital from investing activities
	(1 028	)		(784	)		(2 356	)
	(83	)		(11	)		(84	)	Other cash invested
	(1 030	)		(989	)		1 052		Cash from (used in) financing activities
	127			–			25		Increase (decrease) in cash

CAPITAL EMPLOYED ($ millions)

			TOTAL
2004			2003			2002
			(restated)			(restated)
	2 323			1 221			1 191		Current assets
	549			455			414		Investments, long-term receivables and other
	2 872			1 676			1 605
	13 843			13 101			12 518		Properties, plant and equipment at cost
	(5 809	)		(5 164	)		(4 606	)	Accumulated depreciation, depletion and amortization
	8 034			7 937			7 912		Net properties, plant and equipment
	10 906			9 613			9 517		Total assets
	(4 240	)		(3 190	)		(2 923	)	Total liabilities less long-term debt and short-term borrowings
	6 666			6 423			6 594		Capital employed

58  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

EXPLORATION & PRODUCTION								OIL SANDS									OIL PRODUCTS									CORPORATE
2004		2003			2002			2004			2003			2002			2004			2003			2002			2004			2003			2002
		(restated)			(restated)						(restated)			(restated)						(restated)			(restated)						(restated)			(restated)
975			959			740			711			233			193			639			555			303			25			–			(9	)
116			99			(33	)		117			73			(193	)		132			(229	)		297			(447	)		94			115
1 091			1 058			707			828			306			–			771			326			600			(422	)		94			106
(521	)		(431	)		(389	)		(179	)		(123	)		(1 460	)		(313	)		(194	)		(433	)		(8	)		(11	)		(7	)
9			(6	)		(7	)		(26	)		(17	)		(38	)		11			(3	)		(22	)		(1	)		1			–
(512	)		(437	)		(396	)		(205	)		(140	)		(1 498	)		(302	)		(197	)		(455	)		(9	)		(10	)		(7	)
(8	)		23			(19	)		(14	)		(23	)		(14	)		(46	)		5			(77	)		(15	)		(16	)		26
2			1			(3	)		2			12			–			3			(4	)		8			(1 037	)		(998	)		1 047
573			645			289			611			155			(1 512	)		426			130			76			(1 483	)		(930	)		1 172

EXPLORATION & PRODUCTION								OIL SANDS									OIL PRODUCTS									CORPORATE
2004		2003			2002			2004			2003			2002			2004			2003			2002			2004			2003			2002
		(restated)			(restated)						(restated)			(restated)						(restated)			(restated)						(restated)			(restated)
542			440			408			198			193			81			1 471			1 163			1 214			112			(575	)		(512	)
100			87			82			69			54			32			304			254			255			76			60			45
642			527			490			267			247			113			1 775			1 417			1 469			188			(515	)		(467	)
5 097			4 802			4 495			3 834			3 667			3 549			4 802			4 528			4 380			110			104			94
(2 886	)		(2 544	)		(2 272	)		(315	)		(161	)		(2	)		(2 536	)		(2 392	)		(2 269	)		(72	)		(67	)		(63	)
2 211			2 258			2 223			3 519			3 506			3 547			2 266			2 136			2 111			38			37			31
2 853			2 785			2 713			3 786			3 753			3 660			4 041			3 553			3 580			226			(478	)		(436	)
(1 330	)		(1 137	)		(1 040	)		(926	)		(661	)		(280	)		(1 911	)		(1 440	)		(1 693	)		(73	)		48			90
1 523			1 648			1 673			2 860			3 092			3 380			2 130			2 113			1 887			153			(430	)		(346	)

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   59

NOTE 3. CAPITAL STOCK AND STOCK-BASED COMPENSATION

Shell Canada Limited carries on business under the Canada Business Corporations Act. Common shares are without nominal or par value and are authorized in unlimited number.

The holder of the four per cent preference shares receives fixed, cumulative dividends of $40,000 per annum. The preference shares may be redeemed at the amount paid up thereon plus accrued dividends.

Under the LTIP, the Company may grant options to executives and other employees. The exercise price of each option equals the market price of the Company’s stock on the date of grant and the maximum term of an option is 10 years. Options may not be exercised during the one-year period following the date of grant, after which time one-third of the options may be exercised in each of the next three years on a cumulative basis. For executives, 50 per cent of the options are “performance-based” and their award is tied to the Company’s Total Shareholder Return (TSR). For the performance-based options to vest, the Company’s three-year TSR must exceed the average of the Corporation’s comparator group at the end of the three-year period after being granted. If the Corporation’s TSR does not meet the target, the Management Resources and Compensation Committee may determine, in its sole discretion, that all or a portion of the options granted shall vest. If these options vest, they must be exercised within seven years of the date of vesting.

In 2004, the Company granted 1,696,500 options with an exercise price of $62.55. Of the 2004 options, 281,000 are performance-based.

The Company approved a proposal, effective December 6, 2004, to attach share appreciation rights (SARs) to future and existing options as allowed under the LTIP. The majority of option holders accepted this proposal. The LTIP provides the option holders with the right to either purchase common shares at the exercise price or receive cash payments equal to the excess of the market value of the common shares over the exercise price. The modification to existing options under the LTIP was accounted for prospectively and for the year ended December 31, 2004, the Company recorded compensation expense of $123 million. This amount is net of $29 million of previously recognized compensation expense recorded in prior years as a result of the adoption of the Canadian Institute of Chartered Accountants’ amended Section 3870 “Stock-Based Compensation and Other Stock-Based Payments.” Contributed surplus related to unexercised options was transferred to liabilities.

As at December 31, 2004, the total liability for expected cash settlements with respect to those options attached with SARs under the LTIP is $151 million. During the year ended December 31, 2004, cash payments of $1 million were made for 33,375 SARs exercised.

The fair value of the options related to the option holders who did not accept attachment of SARs to their existing options was estimated using the Black-Scholes model with the following assumptions: risk-free interest rate of 3.82 per cent, expected life of six years, volatility of 19.4 per cent and a dividend yield of 1.61 per cent.

At December 31, 2004, the Company had 16,106,995 shares reserved to meet outstanding options for the purchase of common shares.

On April 30, 2004, the Company announced its intention to make a normal course issuer bid, to repurchase for cancellation up to one per cent of its 275,287,340 common shares issued and outstanding as at April 27, 2004. The bid began May 4, 2004, and will end on or before May 3, 2005. The bid is being used to counter dilution resulting from the issuance of common shares under the Company’s employee stock option program. At December 31, 2004, a total of 783,800 common shares had been repurchased at market prices for a total cost of $54 million (at an average price of $69.56 per share) and cancelled.

Under an earlier normal course issuer bid, which commenced February 7, 2003, and ended February 6, 2004, the Company purchased 1,528,000 shares at an average price of $52.29, for a total cost of $80 million, which includes $9 million of shares purchased in 2004.

60  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

NOTE 3. CAPITAL STOCK AND STOCK-BASED COMPENSATION (continued)

COMMON SHARES

	2004									2003				2002
	Shares			($ millions)			Shares			($ millions)			Shares		($ millions)
Balance at beginning of year		275 042 159			480			275 908 290			468			275 514 500		459
Activity during year
Options exercised		1 141 303			39			504 769			15			393 790		9
Normal course issuer bid		(940 900	)		(2	)		(1 370 900	)		(3	)		–		–
Balance at year-end		275 242 562			517			275 042 159			480			275 908 290		468

A summary of the status of the Company’s stock options as at December 31, 2004, 2003 and 2002, and changes during the years ending on those dates is presented below:

STOCK OPTIONS

	2004								2003		2002
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
	(thousands)			(dollars)		(thousands)			(dollars)		(thousands)			(dollars)
Outstanding at beginning of year		5 873			38.00		4 777			34.22		3 616			28.48
Granted		1 697			62.55		1 674			46.03		1 567			44.70
Exercised – common shares		(1 141	)		32.40		(505	)		29.55		(394	)		22.78
Exercised – SARs		(33	)		38.47		–			–		–			–
Forfeited		(286	)		48.91		(73	)		33.61		(12	)		39.73
Outstanding at year-end		6 110			45.35		5 873			38.00		4 777			34.22
Options exercisable at year-end		2 818					2 808					1 958

Stock options outstanding at December 31, 2004:

	Options Outstanding						Options Exercisable
			Weighted		Weighted				Weighted
			Average		Average				Average
	Number		Remaining		Exercise		Number		Exercise
	Outstanding		Contractual		Price		Exercisable		Price
	(thousands)		Life (years)		(dollars)		(thousands)		(dollars)
$12 – $21		186		1.6		15.92		186		15.92
$21 – $30		502		3.6		22.53		502		22.53
$30 – $40		973		5.6		34.82		973		34.82
$40 – $50		2 884		7.6		45.42		1 157		45.14
$50 – $63		1 565		9.1		62.55		–		–
		6 110		7.1		45.35		2 818		35.63

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   61

NOTE 4. INCOME TAX

The income tax provision included in the determination of earnings reflects an effective tax rate that is different from the Corporation’s statutory tax rate. The following table provides a reconciliation between the effective and statutory rates:

($ millions except as noted)	2004			2003			2002
				(restated)			(restated)
Earnings before income tax		1 885			1 208			860
Basic corporate tax rate (%)		37.5			38.4			40.8
Income tax at basic rate		707			464			351
Increase (decrease) resulting from:
Crown royalties and other payments to provinces		90			107			83
Resource allowance and other abatement measures		(105	)		(82	)		(99	)
Manufacturing and processing credit		(3	)		(3	)		(14	)
Changes in income tax rates		(40	)		(68	)		(16	)
Capital losses not previously recognized		(1	)		(10	)		–
Other, including revisions in previous tax estimates		(49	)		(10	)		–
Total		599			398			305
Effective income tax rates on earnings (%)		31.8			32.9			35.5

The Corporation’s future income tax asset (liability) is comprised of the following tax-affected temporary differences:

($ millions)	2004			2003			2002
				(restated)			(restated)
Current
LIFO inventory valuation		116			67			85
Non-capital losses carryforward		149			–			–
Long Term Incentive Plan		44			–			–
Employee future benefits		(5	)		(5	)		(8	)
Asset retirement obligations		9			3			4
Other		1			–			5
Total – current		314			65			86
Non-current
Properties, plant and equipment		(1 433	)		(1 360	)		(1 186	)
Employee future benefits		(93	)		(74	)		(62	)
Asset retirement obligations		87			89			85
Long Term Incentive Plan		7			–			–
Other		(16	)		(21	)		(14	)
Total – non-current		(1 448	)		(1 366	)		(1 177	)
Net future income tax liability		(1 134	)		(1 301	)		(1 091	)

The Corporation has approximately $612 million of non-capital losses, which may be offset against future taxable income. A future tax benefit has not been recognized on $220 million of these non-capital losses. The losses expire as follows:

Year of Expiry	($ millions)
2007		2
2008		77
2009		76
2010		144
2011		313
Total non-capital losses		612

The Corporation has $94 million in capital losses, which may be offset against future capital gains and may be carried forward indefinitely. The future tax benefit of capital losses has not been recognized.

62  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

NOTE 5. TAXES, ROYALTIES AND OTHER

The following amounts were included in the determination of earnings:

($ millions)	2004		2003		2002
			(restated)		(restated)
Items reported separately:
Income tax		599		398		305
Items included in sales or other operating revenues or in operating, selling and general expenses:
Crown royalties and mineral taxes		304		289		193
Royalties paid to private leaseholders		60		64		41
Other taxes		108		84		51
Research and development expense		28		10		6
Total		1 099		845		596

NOTE 6. LONG-TERM DEBT

($ millions)	Issued		Maturity	2004			2003			2002
Medium-Term Notes
Floating rate notes1	Feb 14, 2002	Dec 15, 2004			–			237			250
Floating rate notes2	Mar 22, 2002	Mar 15, 2005			134			140			140
Floating rate notes1	Mar 22, 2002	Jun 15, 2004			–			105			105
Floating rate notes1	Sep 24, 2002	Sep 24, 2004			–			250			250
Capital leases		varying dates			3			4			180
					137			736			925
Included in current liabilities					(136	)		(734	)		(402	)
Total					1			2			523

1	In 2004, floating rate notes totalling $592 million were repaid.
2	On March 15, 2004, floating rate notes totalling $134 million were extended for one year.

Under the Medium-Term Note Shelf Prospectus filed in December 2001, the Corporation issued five tranches of floating rate notes totalling $745 million in 2002. In 2004, extension options for one tranche initially totalling $140 million were exercised, resulting in $134 million being extended for an additional year. Interest on the floating rate notes is paid quarterly at rates that range from 10 to 17 basis points above the three-month Canadian Dollar Offer Rate.

In 2003, repayment of the capital lease relating to the hydrogen manufacturing unit used in the Athabasca Oil Sands Project reduced capital leases by $184 million.

Repayments of obligations necessary during the next five years are as follows:

$ 136 million in 2005
$    1 million in 2006
Nil in 2007
Nil in 2008
Nil in 2009

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   63

NOTE 7. ASSET RETIREMENT AND OTHER LONG-TERM OBLIGATIONS

($ millions)	2004			2003			2002
				(restated)			(restated)
Asset retirement obligations		282			264			261
Other employee future benefits		137			128			121
Other obligations		33			20			26
		452			412			408
Included in current liabilities		(35	)		(17	)		(19	)
Total		417			395			389

The change in the asset retirement obligations is as follows:

($ millions)	2004			2003			2002
				(restated)			(restated)
Asset retirement obligations at January 1		264			261			229
Additions		4			–			29
Accretion		14			13			11
Revisions in estimated cash flows		20			–			–
Settlements		(20	)		(10	)		(8	)
Asset retirement obligations at December 31		282			264			261

The total undiscounted amount of the estimated cash flows required to settle the obligations is $475 million, which has been discounted using a credit-adjusted risk-free rate of six per cent. The requirement to settle the obligations can occur during the asset’s life but most of the obligations will not be settled until the end of the asset’s useful life, which can exceed 25 years in some circumstances.

64  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

NOTE 8. FINANCIAL INSTRUMENTS

	Notional Fair Value1						Unrealized Gain (Loss)2
($ millions)	2004		2003		2002		2004		2003			2002
Commodity contracts		43		37		80		–		2			1
Foreign exchange contracts		19		29		11		–		(2	)		–

	Notional Fair Value1						Carrying Value
($ millions)	2004		2003		2002		2004		2003		2002
Long-term debt3		134		733		745		134		732		745

1	Notional fair value is the product of the contract volume and the mark-to-market forward price. Purchase and sales positions have not been offset. Amounts disclosed represent the sum of the absolute values of the positions. The reported amounts of financial instruments such as cash equivalents, marketable securities and short-term debt approximate fair value.
2	Unrealized gain or loss represents the gain or loss the Corporation would incur if the contract was liquidated at December 31.
3	Long-term debt includes the current portion.

The Corporation uses commodity contracts to reduce the risk of price fluctuations of some commodities. Over-the-counter contracts with terms generally no longer than one year are used.

At December 31, commodity contracts outstanding were:

		2004				2003				2002
($ millions except as noted)	Face Value		Volume 4		Face Value		Volume4		Face Value		Volume4
Crude oil and refined products commitments		43		810		35		943		79		1 683
Electricity commitments		–		–		–		3		–		3

⁴ Crude oil and refined products volumes are expressed as thousands of barrels and electricity is denoted in thousands of megawatt hours.

A portion of the Corporation’s cash flow is in U.S. dollars. The U.S. dollar receipts are less than U.S. dollar disbursements primarily due to the cost of foreign crude cargoes exceeding U.S. dollar denominated product sales. The resulting net shortage of U.S. dollars is funded through U.S. dollar spot, forward and swap contracts. These instruments generally mature in less than 30 days. U.S. dollar requirements for significant capital projects and some marketing transactions are funded through forward contracts with maturities generally of less than one year.

Non-performance by the other parties to the financial instruments exposes the Corporation to credit loss. The counterparties for most of the commodity contracts are affiliates of Royal Dutch/Shell. Other financial instrument contracts are generally with domestic and international banks or corporations, all with credit ratings of A or better. There is no significant concentration of credit risk and Shell does not anticipate non-performance by the counterparties.

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   65

NOTE 9. EMPLOYEE FUTURE BENEFITS

Employees initially participate in the defined contribution segment of the Corporation’s pension plan. After meeting certain service and age requirements, employees can elect to participate in the defined benefit segment of the pension plan. Benefits from these segments are either partially or fully paid by the Company and are based on years of service and final average earnings. Benefits from the defined benefit segment of the pension plan are indexed for inflation after retirement. In addition to the pension plan, life insurance and supplementary health and dental coverage benefits are provided to retirees. The effective date of the most recent actuarial valuation for funding purposes is December 31, 2004. The next actuarial valuation for funding purposes must be as of a date no later than December 31, 2007.

ACCRUED BENEFIT OBLIGATION ($ millions)	2004						2003						2002
	Pension			Other			Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits			Benefits			Benefits
Accrued benefit obligation as at January 1		1 998			182			1 809			163			1 730			150
Current service cost		32			1			28			1			27			2
Interest cost		118			11			117			10			112			10
Actuarial loss (gain)		25			(13	)		10			3			42			1
Transfers		25			–			19			–			16			–
Benefits paid		(129	)		(7	)		(126	)		(7	)		(123	)		(7	)
Change in assumption		135			(9	)		141			18			5			7
Plan amendments		–			3			–			(6	)		–			–
Accrued benefit obligation as at December 31		2 204			168			1 998			182			1 809			163

Included in the above pension benefits are unfunded amounts for the supplemental pension obligations of $143 million (2003 – $111 million; 2002 – $105 million) and $29 million (2003 – $30 million; 2002 – $30 million) for the spousal pension obligations.

PLAN ASSETS ($ millions)	2004					2003					2002
Plan assets as at January 1		1 782		–			1 648		–			1 786		–
Actual return on plan assets		182		–			194		–			(67	)	–
Employer contributions		119		7			51		7			33		7
Employee contributions		3		–			2		–			2		–
Transfers		25		–			19		–			22		–
Benefits paid		(129	)	(7	)		(126	)	(7	)		(123	)	(7	)
Expenses		(6	)	–			(6	)	–			(5	)	–
Fair value as at December 31		1 976		–			1 782		–			1 648		–
Funded status – deficit		(228	)	(168	)		(216	)	(182	)		(161	)	(163	)
Unamortized net losses		805		12			761		36			710		15
Unamortized past service cost		–		3			–		–			–		–
Unamortized transitional (asset) obligation1		(143	)	16			(179	)	18			(215	)	27
Accrued benefit asset (obligation)2		434		(137	)		366		(128	)		334		(121	)

1	Unrecorded assets are amortized over the expected average remaining service period of active employees, which is currently nine years (2003 – eight years; 2002 – nine years).
2	The Accrued benefit asset (obligation) for pension benefits is included in the “Investments, long-term receivables and other” line and for other benefits in the “Asset retirement and other long-term obligations” line on the Consolidated Balance Sheet.

The percentage of the fair value of total plan assets held at December 31 is as follows:

(per cent)	2004		2003		2002
Equity securities		46.9		44.4		41.6
Debt securities		40.3		45.8		45.2
Real estate		3.4		3.2		4.0
Other		9.4		6.6		9.2
Total		100		100		100

66  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

NOTE 9. EMPLOYEE FUTURE BENEFITS (continued)

(INCOME) EXPENSE ($ millions)	2004						2003						2002
	Pension			Other			Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits			Benefits			Benefits
Current service cost		32			1			28			1			27			2
Employee contributions		(3	)		–			(2	)		–			(2	)		–
Interest cost		118			11			117			10			112			10
Plan amendments		–			3			–			(6	)		–			–
Actual (return) loss on plan assets		(182	)		–			(194	)		–			67			–
Actuarial loss (gain) on accrued benefit obligation		160			(22	)		151			21			47			8
Costs arising in the period		125			(7	)		100			26			251			20
Differences between costs arising in the period and costs recognized in the period in respect of:
Return on plan assets		53			–			63			–			(212	)		–
Actuarial loss (gain)		(91	)		24			(108	)		(21	)		(31	)		(8	)
Plan amendments		–			(3	)		–			6			–			–
Transitional obligation (asset)		(36	)		2			(36	)		3			(36	)		3
Net expense (income) for benefit plan		51			16			19			14			(28	)		15
Defined contribution segment		13			–			12			–			11			–
Total		64			16			31			14			(17	)		15

ASSUMPTIONS (per cent)	2004			2003			2002
Discount rate		5.80	5.80		6.00	6.00		6.60	6.60
Long-term rate of return on plan assets		7.25	–		7.50	–		8.00	–
Rate of compensation growth		4.70	4.70		3.20	3.20		3.10	3.10

For the purpose of measuring the expected cost of other benefit plans, a 7.6 per cent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2005, decreasing each year to a rate of four per cent in 2012 and thereafter.

ASSUMPTIONS SENSITIVITIES ($ millions)	One per cent increase			One per cent decrease
Discount rate
Effect on pension benefit expense		(27	)		31
Effect on accrued benefit obligation		(267	)		326
Long-term rate of return on plan assets
Effect on pension benefit expense		(20	)		20
Rate of compensation growth
Effect on pension benefit expense		8			(7	)
Effect on accrued benefit obligation		51			(45	)
Health care cost trend rate
Effect on current service and interest cost		2			(1	)
Effect on accrued benefit obligation		17			(14	)

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   67

NOTE 10. TRANSACTIONS WITH AFFILIATED COMPANIES

In the course of its regular business activities, Shell Canada enters into routine transactions with affiliates of the Company’s parents. Such transactions are at commercial rates. The amounts paid or received on transactions with Shell International Trading Company and other affiliates of Royal Dutch/Shell that are reflected in the Consolidated Statement of Earnings are shown in the table below:

($ millions)	2004		2003		2002
Purchases of crude oil, petroleum products, chemicals and service agreements		3 961		2 707		1 854
Amounts payable in respect of such purchases		393		228		220
Sales of natural gas, petroleum products and chemicals		1 928		1 609		1 154
Amounts receivable in respect of such sales		215		138		133

Royal Dutch/Shell provides support and technology for operating locations to Shell Canada. Through these service agreements, Shell Canada has access and rights to research and development and technical expertise.

In December 2004, the Corporation purchased the shares of a related party, Coral Resources Canada ULC, for $39 million. The purchase price was established by negotiation with consideration given to comparable commercial transactions. As a result of this transaction, Shell Canada acquired non-capital losses to be used against future taxable income. The Company has recorded a future tax asset of $149 million and a deferred credit of $110 million, which is included with Accounts payable.

In December 2002, Shell Canada completed a transaction with Shell Global Solutions International B.V. regarding the global Oil Products manufacturing cost-sharing agreement. This transaction resulted in a $19 million after-tax gain.

68  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

NOTE 11. COMMITMENTS AND CONTINGENCIES

At December 31, 2004, the Corporation had non-cancellable operating and other long-term commitments with an initial or remaining term of one year or more. Future minimum payments under such commitments are estimated to be:

	Operating			Other Long-Term
($ millions)	Commitments		1	Commitments		2
2005		88			849
2006		73			833
2007		69			831
2008		78			696
2009		138			670
thereafter		124			6 179	3

1	These operating commitments cover leases of service stations, mine equipment, office space and other facilities.
2	The Corporation has substantial commitments for use of facilities or services and supply and processing of products all made in the normal course of business.
3	Based on current year pricing, this amount includes an Oil Products commitment to purchase $3.7 billion of certain feedstocks from the other joint venture participants in the Athabasca Oil Sands Project (AOSP), $1.3 billion for various pipeline charges and $0.9 billion of AOSP utilities and hydrogen commitments.

The Corporation has a leasing arrangement for large mobile equipment (trucks, scrapers and shovels) in use at the Muskeg River Mine. In order to secure attractive leasing terms, a guarantee has been provided to the lessor, which is payable when the equipment is returned to the lessor. At December 31, 2004, the Corporation’s share of the maximum payable under the guarantee was $118 million. Any proceeds received from the sale of the equipment would offset any payment required under the guarantee. The guarantee is in place for the equipment lease term, which will continue for the next one to six years.

Various lawsuits are pending against the Corporation. Actual liability with respect to these lawsuits is not determinable, but management believes, based on counsels’ opinions, that any potential liability will not materially affect the Corporation’s financial position.

Notes to Consolidated Financial Statements SHELL CANADA LIMITED   69

NOTE 12. SALE OF ACCOUNTS RECEIVABLE

The Board of Directors has approved a $600 million accounts receivable securitization program. In 2004, the Corporation decreased the receivables sold under this program to $150 million by year-end.

The Corporation has not retained any beneficial ownership interest in the sold assets and received proceeds that approximated their fair value. The assets were sold on a fully serviced basis and the Corporation has estimated that the servicing liability is insignificant.

NOTE 13. EARNINGS PER SHARE

	2004		2003		2002
			(restated)		(restated)
Earnings ($ millions)		1 286		810		555
Weighted average number of common shares (millions)		275		275		276
Dilutive securities (millions)
Options on Long Term Incentive Plan1		2		2		2
Basic earnings per share (dollars)2		4.68		2.95		2.01
Diluted earnings per share (dollars)3		4.64		2.92		2.00

1	The amount shown is the net number of common shares outstanding after the notional exercise of the share options and the cancellation of the notionally repurchased common shares as per the treasury stock method.
2	Basic earnings per share is the earnings divided by the weighted average number of common shares.
3	Diluted earnings per share is the earnings divided by the aggregate of the weighted average number of common shares plus the dilutive securities.

70  SHELL CANADA LIMITED Notes to Consolidated Financial Statements

SUPPLEMENTAL OIL PRODUCTS DISCLOSURE

   Year ended December 31 (unaudited)

PRODUCTION (thousands of cubic metres/day)	2004		2003		2002
Crude oil processed by Shell refineries
Montreal East (Quebec)		17.6		18.2		17.9
Sarnia (Ontario)		10.9		10.1		10.1
Scotford (Alberta)1		16.6		14.6		13.4
Total		45.1		42.9		41.4
Rated refinery capacity at year-end
Montreal East (Quebec)		20.7		19.4		20.7
Sarnia (Ontario)		12.0		11.4		11.4
Scotford (Alberta)		17.7		18.2		15.5
Total		50.4		49.0		47.6

SALES (thousands of cubic metres/day)	2004		2003		2002
Gasolines		20.9		20.9		20.8
Middle distillates		19.2		17.9		16.7
Other products		7.4		6.9		6.9
Total		47.5		45.7		44.4

	2004		2003		2002
Refinery utilization (per cent)2		89		90		87
Earnings per litre (cents)3		2.6		2.1		1.2

1	Crude oil processed by Shell refineries includes upgrader feedstock supplied to Scotford Refinery.
2	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.
3	Oil Products earnings per litre equals Oil Products earnings after-tax divided by total Oil Products sales volumes.

Supplemental Oil Products Disclosure SHELL CANADA LIMITED   71

SUPPLEMENTAL EXPLORATION & PRODUCTION DISCLOSURE

Year ended December 31 (unaudited)

PRODUCTION1	2004		2003		2002
Natural gas (millions of cubic feet/day)
Gross		540		562		610
Net		449		467		474
Ethane, propane and butane (thousands of barrels/day)
Gross		25.1		26.7		27.9
Net		19.9		21.3		21.1
Condensate (thousands of barrels/day)
Gross		15.2		16.8		19.7
Net		11.8		13.1		13.9
Bitumen (thousands of barrels/day)
Gross		8.1		9.2		8.9
Net		7.9		9.1		8.7
Sulphur (thousands of long tons/day)
Gross		5.6		5.9		6.1

¹ Gross production includes all production attributable to Shell’s interest before deduction of royalties; net production is determined by deducting royalties from gross production.

SALES 2	2004		2003		2002
Natural gas – gross (millions of cubic feet/day)		536		555		598
Ethane, propane and butane – gross (thousands of barrels/day)		44.0		44.5		46.4
Condensate – gross (thousands of barrels/day)		19.6		17.9		22.0
Bitumen – gross (thousands of barrels/day)		11.5		13.9		12.8
Sulphur – gross (thousands of long tons/day)		11.3		10.7		9.5

² Sales volumes include own production, inventory and brokered third party sales.

PRICES	2004		2003		2002
Natural gas average plant gate netback price ($/mcf)		6.49		6.46		4.01
Ethane, propane and butane average field gate price ($/bbl)		28.71		25.48		19.53
Condensate average field gate price ($/bbl)		50.46		41.13		37.72

72  SHELL CANADA LIMITED Supplemental Exploration & Production Disclosure

EXPLORATION AND
DEVELOPMENT WELLS DRILLED	2004				2003				2002
	Gross		Net		Gross		Net		Gross		Net
Exploration
Gas		3		1		3		1		2		1
Dry		4		2		5		4		3		2
		7		3		8		5		5		3
Development
Gas		10		8		7		4		11		8
Bitumen		–		–		–		–		17		17
Dry		1		–		1		1		–		–
		11		8		8		5		28		25
Total wells drilled		18		11		16		10		33		28
Wells in progress		19		15		10		7		8		5

Exploration wells – Wells drilled either in search of new and as yet undiscovered pools of oil or gas, or with the expectation of significantly extending the limits of established pools. All other wells are development wells.

PRODUCTIVE WELLS	2004				2003				2002
	Gross		Net		Gross		Net		Gross		Net
Gas wells
Alberta		303		259		294		252		292		248
British Columbia		1		1		1		1		–		–
Nova Scotia		15		5		15		5		13		4
		319		265		310		258		305		252
Bitumen wells
Alberta		58		58		58		58		58		58
Total productive wells		377		323		368		316		363		310

Productive wells – Producing and non-unitized wells capable of producing.

Gross wells – The number of wells in which Shell Canada has a working interest.

Net wells – The aggregate of the numbers obtained by multiplying each gross well by the percentage working interest of Shell Canada therein, rounded to the nearest whole number.

Supplemental Exploration & Production Disclosure SHELL CANADA LIMITED   73

RESERVES

The Corporation’s reserves disclosure and related information have been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument 51-101– Standards of Disclosure for Oil and Gas Activities (NI 51-101), which permits the Corporation to present its reserves disclosure and related information in accordance with the applicable requirements of the United States Financial Accounting Standards Board (FASB) and the United States Securities and Exchange Commission (SEC). This disclosure differs from the corresponding information required by NI 51-101. If Shell Canada had not received the decision, it would be required to disclose proved plus probable oil and gas reserves estimates based on forecast prices and costs and information relating to future net revenue using forecast prices and costs.

Reserves estimates are prepared by the Corporation’s internal qualified reserves evaluators. No independent qualified reserves evaluator or auditor was involved in the preparation of the Corporation’s reserves data. An external, independent petroleum consulting firm audited 100 per cent of the proved oil and gas reserves estimates prepared by the Corporation’s internal reserves evaluators and verified compliance with applicable FASB and SEC requirements.

Reserves Quantity Information

Estimation of reserves quantities is based on established geological and engineering principles and involves judgmental interpretation of reservoir data. These estimates are subject to revision as additional information from drilling, seismic, production performance and technology becomes available, as economic and operating conditions change, or as properties are divested or acquired. The difference between the gross and net reserves is the volume dedicated to meet royalty payments over the life of the reserves. The net reserves in the table below have been calculated on the basis of royalty rates and economic conditions in place as at year-end. Shell Canada’s estimated proved reserves exclude quantities in the Mackenzie Delta and Arctic Islands, or that otherwise may have been discovered but not yet proved.

OIL, GAS AND OTHER RESERVES
	NATURAL GAS
	(billions of cubic feet)
	2004			2003			2002
Net proved developed and undeveloped reserves
Beginning of year		1 365			1 806			2 067
Revisions of previous estimates		(51	)		(335	)		(97	)
Extensions, discoveries and other additions		122			34			9
Improved recovery methods		4			30			–
Purchases of reserves in place		–			–			–
Sales of reserves in place		(37	)		–			–
Production		(164	)		(170	)		(173	)
End of year		1 239			1 365			1 806
Net proved developed reserves
End of year		893			1 082			1 184
Gross proved developed and undeveloped reserves
End of year		1 595			1 775			2 198
Gross proved developed reserves
End of year		1 160			1 415			1 511

Proved reserves – Estimated quantities of natural gas, natural gas liquids, bitumen and sulphur that geological engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs. These estimates are based on existing economic and operating conditions (prices, costs, royalties and income taxes) as at year-end.

Proved developed reserves – Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.

74  SHELL CANADA LIMITED Supplemental Exploration & Production Disclosure

Natural Gas

Total net natural gas proved reserves decreased by 126 billion cubic feet (bcf) from 1,365 bcf in 2003 to 1,239 bcf in 2004. Extensions, discoveries and improved recovery additions of 126 bcf included an initial booking of 62 bcf for the Tay River discovery in central Alberta. Compliance with FASB and SEC requirements, which limit the area that may be considered in the evaluation of proved reserves in the absence of performance data, restricted the initial booking of proved reserves to only a portion of the expected recovery at Tay River. Additions to proved reserves are anticipated in future years as performance data is acquired and additional development wells are drilled. The balance of the additions results from exploration success in northeastern British Columbia, development drilling in the Foothills, and the development of additional sands for the Sable Offshore Energy Project (SOEP). These additions were offset by a reduction of 37 bcf due to a change in working interest in the Foothills, a net downward revision of 51 bcf resulting from new technical information and economic conditions, and production of 164 bcf.

Natural Gas Liquids

Net proved natural gas liquids reserves decreased by 15 millions barrels due mainly to production of 12 million barrels and a downward technical and economic revision of three million barrels.

Bitumen

Compliance with FASB and SEC requirements for the use of year-end (December 31) prices in the evaluation of proved reserves has led to the debooking of all bitumen reserves at Peace River. A combination of unusually wide heavy oil market differentials and high costs for condensate purchase for blending with the bitumen resulted in uneconomic conditions on December 31, 2004. Consequently, net proved bitumen reserves decreased by the full 167 million barrels. This change will not have any material financial impact and Peace River remains a valuable component of the Company’s portfolio.

Sulphur

Net sulphur reserves increased by one million long tons during 2004 due to positive reserves revisions and additions in the Foothills region partially offset by current year production.

NATURAL GAS LIQUIDS								BITUMEN									SULPHUR
(millions of barrels)								(millions of barrels)									(millions of long tons)
2004		2003			2002			2004			2003			2002			2004			2003			2002
77			105			123			167			183			190			13			14			16
(4	)		(17	)		(5	)		(164	)		(13	)		(4	)		1			1			–
1			1			–			–			–			–			2			–			–
–			1			–			–			–			–			–			–			–
–			–			–			–			–			–			–			–			–
–			–			–			–			–			–			–			–			–
(12	)		(13	)		(13	)		(3	)		(3	)		(3	)		(2	)		(2	)		(2	)
62			77			105			–			167			183			14			13			14
54			69			83			–			27			30			10			12			14
78			95			121			–			182			188			14			15			16
68			85			99			–			27			31			11			14			15

Proved undeveloped reserves – Reserves that are expected to be recovered from new wells on undrilled acreage adjacent to producing acreage, or from existing wells where further significant expenditure is required.

Gross proved reserves – Reserves estimates before the deduction of royalty interests owned by others.

Net proved reserves – Reserves estimates after deduction of royalties and, therefore, only those quantities that Shell has a right to retain.

Supplemental Exploration & Production Disclosure SHELL CANADA LIMITED   75

SUPPLEMENTAL OIL SANDS DISCLOSURE

Year ended December 31 (unaudited)

PRODUCTION1 (thousands of barrels/day)	2004		2003		2002
Bitumen
Gross		81.3		46.3		–
Net		80.5		45.8		–

¹ Gross production includes all production attributable to Shell’s interest before deduction of royalties; net production is determined by deducting royalties from gross production.

SALES2 (thousands of barrels/day)	2004		2003		2002
Synthetic crude sales excluding blend stocks		83.7		46.1		–
Purchased upgrader blend stocks		38.2		17.7		–
Total synthetic crude sales		121.9		63.8		–

² Sales volumes include third party and inter-segment sales.

UNIT COSTS3 ($/bbl)	2004		2003		2002
Cash operating cost – excluding natural gas		17.79		–		–
Cash operating cost – natural gas		5.53		–		–
Total cash operating cost		23.32		–		–
Depreciation, depletion and amortization		5.59		–		–
Total unit cost		28.91		–		–

3	Unit cash operating cost is a key internal and external measure used to evaluate the performance of the Oil Sands segment of the Company. Unit cash operating cost for Oil Sands 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. Cash cost items included in COGS are $172 million in 2004. Unit cash operating cost in 2004 includes mobile equipment lease costs of $0.58 per barrel.
	Unit depreciation, depletion and amortization (DD&A) cost for Oil Sands is defined as: DD&A cost divided by synthetic crude sales excluding blend stocks. Unit DD&A cost includes preproduction costs, which are being written off over the first three years of the project life (2003-2005). In 2004, preproduction costs account for$1.90 per barrel of the total unit DD&A cost.
	Total unit cost (including unit cash operating and unit DD&A costs) does not have any standardized meaning prescribed by Canadian generally accepted accounting principles and therefore may not be comparable with the calculation of similar measures for other companies.

PRICES ($/bbl)	2004		2003		2002
Synthetic crude average plant gate price		44.67		34.18		–

76  SHELL CANADA LIMITED Supplemental Oil Sands Disclosure

RESERVES

The Muskeg River Mine development on Lease 13 was designed to access proved and probable reserves of bitumen totalling 1.7 billion barrels (total project) over 30 years of operation commencing in 2003 at the average design production level of 155,000 barrels per day. The reserves base includes reserves from the areas to the west of the Muskeg River where mining operations were initiated as well as reserves located immediately to the east of the Muskeg River. No changes other than production were made to the reserves in 2004. Shell’s 60 per cent interest is 621 million barrels of proved and 350 million barrels of probable reserves. This estimate is before deduction of royalties. Under the Oil Sands Royalty Regime Regulation, royalties depend on project cash flows. Therefore, the calculation of royalties depends on price, production rates, capital costs and operating costs over the life of the Muskeg River Mine and future expansion projects. At 2004 year-end pricing, net reserves would not be materially different from gross reserves.

The reserves estimates are based upon a detailed geological assessment including drilling and laboratory tests. They also consider current mine plans, planned operating life and regulatory constraints. The current proved plus probable reserves estimate includes only the portion of Lease 13 that represents the development area approved by the Alberta Energy and Utilities Board. The reserves estimate is the actual barrels of bitumen to be shipped for processing at the Scotford Upgrader. No allowance for volume losses during upgrading is required because of the Scotford Upgrader’s hydroconversion upgrading process.

Drilling density is a factor in classifying reserves as either proved or probable. Proved reserves of bitumen are based on drill hole spacing less than 350 metres. Probable reserves of bitumen are based on drill hole spacing less than 700 metres. Classification of both proved and probable reserves of bitumen possesses a high degree of geological certainty and is predicated on the application of the existing proven technology.

The Corporation’s minable bitumen reserves disclosure and related information have been prepared in reliance on a decision of the applicable Canadian securities regulatory authorities under National Instrument NI 51-101 – Standards of Disclosure for Oil and Gas Activities (NI 51-101), which permits the Corporation to present its reserves disclosure and related information in accordance with the applicable requirements of the United States Financial Accounting Standards Board (FASB) and the United States Securities and Exchange Commission (SEC). If Shell Canada had not received the decision, it would be required to disclose minable bitumen reserves estimates based on forecast prices and costs and information relating to future net revenue using constant and forecast prices and costs.

Reserves estimates are prepared by the Corporation’s internal qualified reserves evaluators. No independent qualified reserves evaluator or auditor was involved in the preparation of the Corporation’s reserves data.

OIL SANDS RESERVES
	MINABLE BITUMEN
	(millions of barrels)
	2004			2003			2002
Gross proved reserves
Beginning of year		651			600			600
Revisions of previous estimates		–			–			–
Additions		–			68			–
Production		(30	)		(17	)		–
End of year		621			651			600
Gross probable reserves
Beginning of year		350			300			300
Revisions of previous estimates		–			–			–
Additions		–			50			–
End of year		350			350			300
Gross proved and probable reserves		971			1 001			900
Net proved reserves		615			572			517
Net probable reserves		347			307			258
Net proved and probable reserves		962			879			775

Supplemental Oil Sands Disclosure SHELL CANADA LIMITED   77

SUPPLEMENTAL LANDHOLDINGS DISCLOSURE

As at December 31 (unaudited)

	UNDEVELOPED								DEVELOPED
(thousands of acres)	2004				2003				2004				2003
	Gross		Net		Gross		Net		Gross		Net		Gross		Net
Onshore within the provinces
Conventional oil and gas:
Alberta		373		211		319		185		552		384		552		385
British Columbia		286		220		152		118		–		–		–		–
Quebec		5		–		5		–		–		–		–		–
Coalbed methane:
Alberta		24		24		16		16		–		–		–		–
British Columbia		1 018		1 018		–		–		–		–		–		–
Bitumen:
– mining		120		105		90		72		11		7		5		3
– in situ		85		85		85		85		7		7		6		6
		1 911		1 663		667		476		570		398		563		394
Canada Lands
Offshore Nova Scotia		840		322		2 749		953		109		34		109		34
Northwest Territories		262		245		261		245		–		–		–		–
Offshore West Coast		13 590		12 845		13 590		12 845		–		–		–		–
Nunavut Territory		5 801		3 100		5 801		3 100		–		–		–		–
		20 493		16 512		22 401		17 143		109		34		109		34
Total		22 404		18 175		23 068		17 619		679		432		672		428

Gross acres include the interests of others; net acres exclude the interests of others.

Developed lands are leases and other forms of title documents issued by owners or legislative authorities that contain a well, or are in close proximity to other lands that contain a well that has been drilled or completed to a point that would permit production of commercial quantities of oil and gas.

Undeveloped lands are all lands that are not developed and that retain exploration rights.

78  SHELL CANADA LIMITED Supplemental Landholdings Disclosure

SUPPLEMENTAL FINANCIAL DATA AND QUARTERLY STOCK-TRADING INFORMATION

Year ended December 31 (unaudited)

DATA PER COMMON SHARE (dollars except as noted)	2004		2003		2002
			(restated)		(restated)
Earnings – basic		4.68		2.95		2.01
Earnings – diluted		4.64		2.92		2.00
Dividends		0.94		0.82		0.80
Common shareholders’ equity		23.74		20.13		18.11
Common shares outstanding at year-end (millions)		275		275		276
Registered shareholders (number at year-end)		2 454		2 554		2 643

RATIOS	2004		2003		2002
			(restated)		(restated)
Return on average common shareholders’ equity (%)1		21.3		15.4		11.5
Return on average capital employed (%)2		19.9		13.1		10.1
Common share dividends as a percentage of earnings3		20.1		27.9		39.8
Price to earnings ratio4		17.1		20.8		24.5
Current assets to current liabilities		0.9		0.5		0.5
Interest coverage5		73.5		19.3		18.6
Reinvestment ratio (%)6		43.4		43.4		186.3
Total debt as a percentage of capital employed7		2.1		13.8		24.2
Debt to cash flow (%)8		5.8		50.7		130.1

1	Earnings divided by average common shareholders’ equity.
2	Earnings plus after-tax interest expense divided by average of opening and closing capital employed. Capital employed is a total of equity, long-term debt and short-term borrowings.
3	Common share dividends paid divided by earnings.
4	Closing share price at December 31 divided by earnings per share.
5	Pretax earnings plus interest expense divided by interest expense.
6	Capital, exploration, predevelopment and investment expenditures divided by cash flow from operations.
7	Total debt divided by total debt plus equity.
8	Total debt divided by cash flow from operations.

EMPLOYEES	2004		2003		2002
Employees (number at year-end)		4 003		3 850		3 825

STOCK-TRADING INFORMATION	2004										2003
	Quarter								Total		Quarter								Total
	1st		2nd		3rd		4th		Year		1st		2nd		3rd		4th		Year
Share prices (dollars)1
High		65.85		66.40		69.46		80.03		80.03		50.15		54.75		54.60		62.28		62.28
Low		57.70		61.31		62.05		68.50		57.70		45.00		46.58		51.00		50.68		45.00
Close (end of period)		62.05		64.49		69.00		79.99		79.99		49.25		52.63		53.31		61.25		61.25
Shares traded (thousands)1		7 392		6 517		5 751		7 071		26 731		10 076		5 645		4 772		7 237		27 730

¹ Toronto Stock Exchange quotations.

Supplemental Financial Data and Quarterly Stock-Trading Information SHELL CANADA LIMITED   79

CORPORATE DIRECTORY AND BOARD OF DIRECTORS

OFFICERS (all in Calgary)

Clive Mather
President and
Chief Executive Officer

Cathy L. Williams
Chief Financial Officer

VICE PRESIDENTS

Neil J. Camarta
Senior Vice President,
Oil Sands

H. Ian Kilgour
Senior Vice President,
Exploration & Production

David M. Weston
Senior Vice President,
Oil Products

Simon A. Fish
Vice President,
General Counsel and Secretary

Graham Bojé
Vice President,
Manufacturing and Supply

Rob W.P. Symonds
Vice President, Foothills

Timothy J. Bancroft
Vice President,
Sustainable Development,
Technology and Public Affairs

Sam Spanglet
Vice President,
Operations, Oil Sands

TREASURER
Matthew B. Haney

CONTROLLER
Donna Tarka

BOARD OF DIRECTORS

Derek H. Burney, O.C. (2)(3)(4)	Ida J. Goodreau (1)(3)
Ottawa, Ontario	Vancouver, British Columbia
On the Board of Directors since April 25, 2001.	On the Board of Directors since April 24, 2003.
Since 2004, Mr. Burney has been Chairman of New Brunswick Power Corporation, a Crown corporation. New Brunswick Power Corporation is the largest electric utility in Atlantic Canada. From 1999 to 2004, Mr. Burney served as President and Chief Executive Officer of CAE Inc., a provider of simulation and control technologies used in the aerospace and defence sectors. Mr. Burney also serves as a Director of Quebecor World Inc. and is an Advisory Board Member of Idelix Software Inc. He is a Senior Distinguished Fellow and Adjunct Professor of Carleton University.	Ms. Goodreau has been President and Chief Executive Officer, Vancouver Coastal Health Authority since 2002. She also serves as a Director of Terasen Inc. From 2000 to 2002, Ms. Goodreau was Senior Vice President, Global Optimization and Human Resources, Norske Skog Industries.
Clive Mather	Ronald W. Osborne (1)(3)(4)
Calgary, Alberta	Toronto, Ontario
On the Board of Directors since August 1, 2004.	On the Board of Directors since April 25, 2001.
Since August 1, 2004, Mr. Mather has been President and Chief Executive Officer of Shell Canada Limited. Mr. Mather served as Chairman of Shell U.K. Limited and Head of Global Learning of Shell International Ltd. from 2002 to 2004. Before that, he was Special Advisor to the Chairman of the Committee of Managing Directors of Shell International Ltd. After serving as Director, International, of Shell International Ltd., Mr. Mather was Chief Executive Officer of Shell Services International Ltd. from 1999 to 2001. Mr. Mather is a Director and President of Shell International Ltd. and a Director of Shell Chemicals Canada Ltd., Shell Canada Products Limited and Shell Canada Oil Products Inc.	From 1999 to 2003, Mr. Osborne was President and Chief Executive Officer of Ontario Power Generation Inc., which owns the power generation assets supplying about 85 per cent of all electricity consumed in Ontario. Mr. Osborne also serves as a Director of Sun Life Financial Inc., Torstar Corporation, St. Lawrence Cement Group Inc., Massachusetts Financial Services Company, Four Seasons Hotels Inc. and a Trustee of RioCan Real Estate Investment Trust.

80  SHELL CANADA LIMITED Corporate Directory and Board of Directors

Kerry L. Hawkins (1)(2)(4)	David W. Kerr (1)(2)(4)	W. Adrian Loader
Winnipeg, Manitoba	Toronto, Ontario	Guildford, England
On the Board of Directors since October 1, 1997.	On the Board of Directors since April 24, 2003.	On the Board of Directors since September 27, 2003.
Since 1982, Mr. Hawkins has been President of Cargill Limited, a Canadian agricultural company. Mr. Hawkins also serves as a Director of TransCanada PipeLines Limited, TransCanada Corporation, Hudson’s Bay Company and Nova Chemicals Corporation. He is Chairman of the Board, Saskferco Products Inc.	Since 2002, Mr. Kerr has been Chairman and Director of Noranda Inc., an international mining and metals company. From 2001 to 2002, Mr. Kerr was Chairman and Chief Executive Officer of Noranda Inc. and from 1990 to 2001, he served as the company’s President and Chief Executive Officer. Mr. Kerr also serves as a Director of Sun Life Financial Inc. and Brascan Corp.	Since June 2003, Mr. Loader has served as Director, Strategic Planning, Sustainable Development and External Affairs for Shell International Ltd. He was President, Shell Oil Products Europe from 1999 until June 2003. The main businesses of all Shell and Royal Dutch companies are oil, natural gas, chemicals and renewable resources. Mr. Loader also serves as a Director of other Royal Dutch/Shell companies and Alliance Unichem p.l.c.
Raymond Royer O.C. (1)(3)	Nancy C. Southern (2)(3)	Jeroen van der Veer
Ile Bizard, Quebec	Calgary, Alberta	Wassenaar, the Netherlands
On the Board of Directors since April 26, 2000.	On the Board of Directors since April 25, 2001.	On the Board of Directors since April 24, 2003.
Since 1996, Mr. Royer has been President and Chief Executive Officer of Domtar Inc., a North American manufacturer of fine papers, pulp and forest products with a 50 per cent interest in Norampac Inc., which manufactures containerboard and corrugated containers. Mr. Royer also serves as a Director of Domtar Inc. and Power Financial Corporation.	Ms. Southern has been President and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited since January, 2003. From 2000 to December 2002, Ms. Southern was Co-Chairman and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited. Ms. Southern also serves as Director and Chief Executive Officer of certain other subsidiaries of ATCO Ltd. and Canadian Utilities Limited. She is a Director of the Bank of Montreal and Executive Vice President of Spruce Meadows.	Since 2004, Mr. Van der Veer has been Chief Executive of Royal Dutch/Shell. He has been a Managing Director of Royal Dutch Petroleum Company since 1997 and its President since 2000. Mr. Van der Veer joined Royal Dutch/Shell in 1971 and had an international career working in various roles in a number of countries. Mr. Van der Veer also serves as a Non-Executive Director of Unilever.

Member of the:
⁽¹⁾    Audit Committee
⁽²⁾    Nominating and Governance Committee
⁽³⁾    Management Resources and Compensation Committee
⁽⁴⁾    Reserves Committee

Corporate Directory and Board of Directors SHELL CANADA LIMITED   81

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Company’s corporate governance practices meet or exceed the guidelines recommended by the Toronto Stock Exchange (TSX) for effective corporate governance. These practices are consistent with proposed National Instrument 58-101 – Disclosure of Corporate Governance Practices and the relevant provisions of the United States Sarbanes-Oxley Act of 2002 and the United States Securities and Exchange Commission regulations.

A complete description of the Company’s approach to corporate governance is set out in Appendix 2 to the Company’s Management Proxy Circular dated March 10, 2005, entitled “Statement of Corporate Governance Practices,” a copy of which is posted on the Company’s website at www.shell.ca.

Responsibilities

The Board of Directors supervises the business and affairs of the Company in a stewardship role. The day-to-day management is delegated to the officers of the Company. Any responsibilities that have not been delegated to the officers or to a committee of the Board remain with the Board.

Composition

The Board is composed of 10 directors. Seven of the 10 directors are independent. An independent director, as defined by Multilateral Instrument 52-110 Audit Committees, is a director who has no direct or indirect material relationship with the issuer. C. Mather, President and Chief Executive Officer, is a non-independent director because of his executive office and J. van der Veer and W.A. Loader are considered non-independent directors because they are related to the majority shareholder. Seven of the 10 directors are independent directors who have no material relationship with either the Company or the majority shareholder. The Board believes this fairly reflects the investment of minority shareholders. Ten directors will be nominated for election at the annual and special meeting of shareholders in April 2005.

Independence

The Chairman of the meetings of the Board is a separate role from the President and Chief Executive Officer. All members of the committees are independent directors and not related to the Company or its majority shareholder.

Committees

The Board has four committees: the Audit Committee, the Nominating and Governance Committee, the Management Resources and Compensation Committee, and the Reserves Committee. The text of the Board and committee mandates appears in the Management Proxy Circular, Appendix 1, and copies of the Board and committee charters can be found on the Company’s website at www.shell.ca.

Compensation

The Nominating and Governance Committee reviews the adequacy and form of compensation of directors in light of the risks and responsibilities involved in being a director. Directors’ compensation includes minimum share ownership requirements. The Management Resources and Compensation Committee approves the annual compensation for the President and Chief Executive Officer and his senior executives, including stock option and incentive programs. Further details are set out in the Report on Executive Compensation in the Management Proxy Circular.

Controls

The effectiveness of the Company’s internal control processes and management information systems is continually assessed. The Audit Committee is supported by a management assurance committee that oversees a range of appraisal mechanisms, including business control audits, health, safety and environment audits, asset integrity reviews and self assessments.

82  SHELL CANADA LIMITED Statement of Corporate Governance Practices

Conduct

The Board expects management to manage the business of the Company in a manner that enhances shareholder value, consistent with the highest level of integrity and within the law. The Board adopted a Statement of General Business Principles and Code of Ethics, which apply to all employees in their conduct of the Company’s business. The text of the Statement of General Business Principles and Code of Ethics has been posted on the Company’s website at www.shell.ca. The Company has established procedures for reporting employee concerns regarding accounting or auditing matters or breaches of the Code of Ethics to management, the Company’s controller, the Audit Committee or, on an anonymous basis, to the Ombuds office.

Information

The Board has adopted a corporate disclosure policy based on the Canadian Securities Administrators’ National Policy 51-201 – Disclosure Standards and the TSX’s Policy Statement on Timely Disclosure and Electronic Communications Disclosure Guidelines. A copy of Shell Canada’s policy can be found on the Company’s website at www.shell.ca.

Communications

The Company issues quarterly financial press releases and various other releases throughout the year. Other means of communication include the Annual Report and the Company’s website. The Investor Relations manager and senior management communicate with shareholders, institutional investors and the financial community. The Company’s transfer agent or the Corporate Secretary’s department responds to shareholders’ account inquiries. Shareholders and the public receive a response from the Public Affairs department, the Investor Relations department, the Corporate Secretary’s department or the appropriate member of senior management.

Audit Committee

The members of the Audit Committee are:
K.L. Hawkins (Chairman),
I.J. Goodreau,
D.W Kerr,
R.W. Osborne, and
R. Royer.

The Audit Committee held nine meetings in 2004.

Nominating and Governance Committee

The members of the Nominating and Governance Committee are:
D.H. Burney (Chairman),
K.L. Hawkins,
D.W. Kerr, and
N.C. Southern.

The Nominating and Governance Committee held four meetings in 2004.

Management Resources and Compensation Committee

The members of the Management Resources and Compensation Committee are:
R.W. Osborne (Chairman),
D.H. Burney,
I.J. Goodreau,
R. Royer, and
N.C. Southern.

The Management Resources and Compensation Committee held seven meetings in 2004.

Reserves Committee

The members of the Reserves Committee are:
D.W. Kerr (Chairman),
D.H. Burney,
K.L. Hawkins, and
R.W. Osborne.

The Reserves Committee was established in September 2004 and held its first meeting in November 2004. The Audit Committee was responsible for overseeing the Company’s reserves disclosure until the establishment of the Reserves Committee.

Statement of Governance Practices SHELL CANADA LIMITED   83

INVESTOR INFORMATION

SHELL CANADA LIMITED

(incorporated under the laws of Canada)

Head Office

Shell Centre
400 – 4th Avenue S.W.
Calgary, Alberta T2P 0J4
Telephone (403) 691-2175
Website www.shell.ca

Transfer Agent and Registrar

CIBC Mellon Trust Company
P.O. Box 7010 Adelaide Street Postal Station
Toronto, Ontario, Canada M5C 2W9

E-mail	inquiries@cibcmellon.com
Website	www.cibcmellon.com
Facsimile	(416) 643-5501
Answerline	(416) 643-5500 or
	1-800-387-0825
	Toll-free throughout North America

Stock Exchange Listings

The common shares of Shell Canada Limited are listed on the Toronto Stock Exchange (stock symbol SHC) and do not have an established public trading market in the United States.

Annual and Special Meeting

The annual and special meeting of shareholders will be held at 11:00 a.m., Friday, April 29, 2005, in the Wildrose Ballroom, Sheraton Suites Eau Claire, Calgary, Alberta.

Duplicate Reports

Shareholders who receive more than one copy of Shell Canada’s Interim Reports and the Annual Report as a result of having their shareholdings represented by two or more share certificates may wish to contact the transfer agent to have their holdings consolidated. It will not be necessary to forward share certificates.

Annual Information Form and Progress Toward Sustainable Development

The Corporation’s Annual Information Form for 2004 and the publication Progress Toward Sustainable Development are available to shareholders on request from the Corporation’s Secretary at Shell’s head office.

Ownership and Voting Rights of Shell Canada Limited

(as at December 31, 2004)

Ownership of Shell Canada Limited is divided between Shell Investments Limited and public shareholders. Shell Investments Limited holds approximately 78 per cent of the equity and voting rights.

The publicly held common shares (approximately 61 million) constitute about 22 per cent of the equity and voting rights in the Corporation.

Shell Investments Limited is a Canadian company, wholly owned by Shell Petroleum N.V. of the Netherlands, which, in turn, is owned 40 per cent by The “Shell” Transport and Trading Company, p.l.c., an English company, and 60 per cent by Royal Dutch Petroleum Company of the Netherlands.

Approximate Conversion Factors

1 cubic metre of liquids	=	6.29 barrels
1 cubic metre of gases	=	35.3 cubic feet
1 barrel of oil equivalent	=	6,000 cubic feet of gases
1 tonne	=	2,205 pounds
	=	0.984 long ton
	=	1.102 short tons
1 kilometre	=	0.621 mile
1 hectare	=	2.47 acres
1 litre	=	0.22 gallon

84  SHELL CANADA LIMITED Investor Information

This annual report is recyclable and has been printed using vegetable-based inks.
The cover and text pages are elemental chlorine-free and acid-free.
The financial pages are 30 per cent post-consumer waste and are archival and acid-free.

FOR INFORMATION:
Investor Relations
Shell Canada Limited
Shell Centre
400 – 4th Avenue S.W.
Calgary, Alberta T2P 0J4
Telephone (403) 691-2175
www.shell.ca

EX-99.C

NOTICE OF ANNUAL AND SPECIAL MEETING
OF SHAREHOLDERS

April 29, 2005

MANAGEMENT PROXY CIRCULAR
 

 
 

SHELL CANADA LIMITED

Notice of the Annual and Special Meeting of Holders of

Common Shares and 4% Cumulative Redeemable Preference Shares

Notice is hereby given that an Annual and Special Meeting of the holders of Common Shares and 4% Cumulative Redeemable Preference Shares of Shell Canada Limited (the “Corporation”) will be held in the Wildrose Ballroom, at Sheraton Suites Eau Claire, 255 Barclay Parade S.W., Calgary, Alberta, on the 29th day of April, 2005, at 11:00 o’clock in the morning, local time, for the following purposes:

(1)	to receive the Annual Report and the comparative consolidated financial statements of the Corporation and its subsidiaries for the year ended December 31, 2004 and the report of the auditors thereon;
(2)	to elect directors for the ensuing year;
(3)	to appoint PricewaterhouseCoopers LLP as auditors for the ensuing year and to authorize the directors to fix the auditors’ remuneration;
(4)	to consider and, if deemed advisable, pass a special resolution to authorize management of the Corporation to amend the Articles of the Corporation to effect a subdivision of the Corporation’s Common Shares on a 3:1 basis;
(5)	to consider the shareholder proposal attached in Appendix 4 to the Management Proxy Circular of the Corporation dated March 10, 2005 (the “Management Proxy Circular”); and
(6)	to transact such further or other business as may properly be brought before the meeting or any adjournment or adjournments thereof.

DATED at Calgary, Alberta, this 10th day of March, 2005.

BY ORDER OF THE BOARD

Simon A. Fish

Secretary

Important: Your participation at the Annual and Special Meeting is important in order to allow you to discuss and vote on the business of the meeting. If you are unable to attend the meeting in person, you may vote by proxy. Instructions on how to complete and return the enclosed form of proxy are set out under “Voting and Proxies: Questions and Answers” in the Management Proxy Circular. To be valid, your proxy must be received by CIBC Mellon Trust Company no later than 11:00 a.m. (MST) on April 29, 2005. Your proxy should be sent to the following address:

CIBC Mellon Trust Company

Attention: Proxy Department

P.O. Box 12005, Station Brm. B

Toronto, Ontario M7Y 2K5

TABLE OF CONTENTS

Voting and Proxies: Questions and Answers			3
Principal Holders and Certain Beneficial Owners of Voting Shares			6
Election of Directors			7
Information Concerning Nominees for Election to the Board of Directors			7
Interest of Informed Persons in Material Transactions			12
Composition of the Compensation Committee			12
Report on Executive Compensation			12
	Compensation Philosophy		12
	Role of the Compensation Committee		13
	Compensation Summary		13
	Base Salaries		14
	Annual Incentive Pay		14
	Long Term Incentive Plan		15
	Share Ownership Guidelines		16
	Executive Deferred Share Unit Plan		17
	Compensation of the President and CEO		17
		Base Salary	17
		Annual Incentive Pay	17
		Long Term Incentives	18
Summary Compensation Table			20
Options and Share Appreciation Rights			22
Retirement and Savings Program			24
Indebtedness			26
Five Year Total Shareholder Return Comparison			26
Compensation of Directors			27
	Annual Retainers and Attendance Fees		27
	Directors’ Compensation Plans		28
	Director Share Ownership Requirements		28
Report of the Audit Committee			29
	Membership		29
	Financial Literacy and Expertise		29
	Charter		29
	Meetings – 2004		30
	Meetings – First Quarter of 2005		31
		Financial Disclosure	31
		Reappointment of External Auditors	31
Directors’ and Officers’ Liability Insurance			31
Statement of Corporate Governance Practices			32
Appointment of Auditors			32
Subdivision of Common Shares			33
Shareholder Proposal			34
2006 Annual Meeting of Shareholders			34
Availability of Documents			35
Directors’ Approval			35
Appendix 1 Board and Committee Mandates			36
Appendix 2 Statement of Corporate Governance Practices			41
Appendix 3 Special Resolution of the Shareholders of Shell Canada Limited			56
Appendix 4 Shareholder Proposal			57

Voting and Proxies: Questions and Answers

Your vote is very important to us. The following questions and answers provide guidance on how to vote your shares. Should you have any further questions once you have had a chance to review the questions and answers, please contact our transfer agent, CIBC Mellon Trust Company, by mail at:

           CIBC Mellon Trust Company

           P.O. Box 7010 Adelaide Street

           Postal Station

           Toronto, Ontario M5C 2W9

or by telephone:

           Within Canada and the US: (800) 387-0825

           In the Toronto area, or from any other country:

           (416) 643-5500

Q.  Who is soliciting my proxy?

A. Management of the Corporation is soliciting your proxy. The solicitation of proxies will be exercised primarily through mail, however proxy solicitation may also be conducted by telephone, e-mail, facsimile or other contact by employees or agents of the Corporation. The Corporation will bear the cost of such solicitation.

Q.  Who is entitled to vote?

A. Each shareholder is entitled to one vote for each Common Share and 4% Cumulative Redeemable Preference Share of the Corporation owned as of March 10, 2005, the record date for the Meeting.

The list of shareholders will be prepared as of the close of business on March 10, 2005. This list will be available for inspection after March 11, 2005 at the Corporation’s registered office and will be available at the Meeting.

Q.  What am I voting on?

A. The following matters will be voted on at the Meeting:

(i)	the election of directors;
(ii)	the appointment of auditors;
(iii)	the amendment of the Articles of the Corporation to effect a subdivision of the Corporation’s Common Shares on a 3:1 basis;
(iv)	the shareholder proposal, as set out in Appendix 4 to the Management Proxy Circular; and
(v)	any other business that may be properly brought before the Meeting or any adjournment or adjournments thereof.

Q.  How will these matters be decided upon at the Meeting?

A. A simple majority of the votes cast in person or by proxy will constitute approval of each of the matters identified in (i), (ii) and (iv) above. The matter identified in item (iii) will require approval by two-thirds of the votes cast in person or by proxy.

Q.  What if there are amendments to these matters or other matters are brought before the Meeting?

A. If you are attending the Meeting and are eligible to vote, you have the authority to vote on the matters discussed during the Meeting as you choose. If you are not attending the Meeting, the person named in the enclosed form of proxy will have the discretionary authority to vote on any amendments or variations in any matters identified in the Notice of Meeting and with respect to other matters that may properly come before the Meeting.

At the date of this Management Proxy Circular, management of the Corporation

-3-

Voting and Proxies: Questions and Answers

knows of no such amendments, variations or other matters to come before the Meeting.

Q.  How do I vote?

A. If you are a registered shareholder, you can vote in person at the Meeting. If you are able to attend the Meeting, do not use the enclosed form of proxy. Rather, your vote will be taken and counted at the Meeting. If you are unable to attend the Meeting, please complete and return the enclosed form of proxy to our transfer agent, CIBC Mellon Trust Company, Attention: Proxy Department, P.O. Box 12005, Station Brm. B, Toronto, Ontario M7Y 2K5 so that it arrives no later than 11:00 a.m. (MST) on April 29, 2005.

If you are a beneficial shareholder (if your shares are not registered in your own name, but are held in the name of a nominee (a bank, broker, trust company)), you should follow the instructions from your nominee with respect to voting procedures. Your nominee will provide you with a package including these Meeting materials and either a proxy or a voting instruction form. If you are attending the Meeting in person, you should appoint yourself as proxyholder by inserting your own name in the space provided on the proxy or voting instruction form sent to you by your nominee. If you appoint yourself as a proxyholder and are attending the Meeting in person, be sure to identify yourself at the registration desk.

Q.  Who will be my proxyholder?

A. A proxyholder is a person you appoint to act on your behalf to vote your shares on the matters to be voted upon at the Meeting. If you sign and return your proxy form, you will be providing authority to Ms. Cathy L. Williams and Mr. Simon A. Fish to vote your shares at the Meeting. These individuals are both officers of the Corporation.

Q. Can I appoint someone other than these officers to vote my shares?

A. Yes. You have the right to appoint a person to represent you at the Meeting other than the officers designated in the form of proxy. You may appoint another person to vote your shares as your proxyholder by drawing a line through the printed names and inserting the name of such person in the space provided on the proxy form. This person does not have to be a shareholder of the Corporation.

If you appoint another person to vote your shares at the Meeting, it is important that this person attends the Meeting and identifies themselves as your proxyholder at the registration desk.

Q. How will my shares be voted if I return the proxy?

A. You can choose on your proxy how you want your shares voted. Alternatively, you can let your proxyholder decide for you. If you choose to specify how you want your shares voted on a particular matter, your proxyholder will vote your shares that way on any ballot that may be called for at the Meeting. If neither you nor your proxyholder gives specific instructions, your shares will be voted as follows:

• FOR the election of directors;

• FOR the appointment of auditors;

• FOR the special resolution to authorize management to amend the Articles of the Corporation to effect a subdivision of the Corporation’s Common Shares on a 3:1 basis;

• FOR management’s proposals generally and AGAINST the shareholder proposal, as set out in Appendix 4 to the Management Proxy Circular.

-4-

Voting and Proxies: Questions and Answers

Q.  Where do I send my proxy?

A. Please return your proxy to our transfer agent, CIBC Mellon Trust Company, in the postage-paid envelope provided. Alternatively, you may fax your completed proxy to (416) 368-2502. Your completed proxy must be received by CIBC Mellon Trust Company by 11:00 a.m. (MST) on April 29, 2005.

Q. What is the deadline for submitting my proxy?

A. To be effective your proxy must be received by CIBC Mellon Trust Company before the time of the Meeting.

Q.  Who counts the votes?

A. CIBC Mellon Trust Company counts and tabulates the proxies, independently of the Corporation.

Q. Can I change my mind once I have submitted my proxy to the Corporation?

A. Yes. The procedure for revoking your proxy is dependent on whether or not you are a registered or a non-registered shareholder. If you are a registered shareholder, you can revoke your proxy by stating clearly, in writing, that you want to revoke your proxy. This statement should be delivered: (i) to the Corporation’s Secretary by mail at 400 - 4th Avenue S.W., Calgary, Alberta, T2P 2H5, or by facsimile at (403) 691-3696 at any time up to and including the last business day preceding the day of the Meeting at which the proxy is to be used, or any adjournment thereof; (ii) to the Chairman of the Meeting prior to the commencement of the Meeting on the day of the Meeting, or any adjournment thereof; or (iii) in any other manner permitted by law. If you have completed and returned a proxy and attend the Meeting in person and vote, any such votes cast by you will be counted and your proxy will be disregarded.

If you are a non-registered shareholder, you should contact your nominee for instructions to revoke your proxy.

Q. How many shareholders are required to constitute a quorum at the Meeting?

A. The Corporation’s by-laws provide that the quorum for the transaction of business at the Meeting will be two persons present in person, each being a shareholder entitled to vote, or a duly appointed proxyholder, and together representing not less than a majority of the outstanding shares of the Corporation entitled to vote at the meeting.

Q.  How many shares are eligible to vote?

A. As of March 10, 2005, the Corporation’s outstanding voting shares, each of which carries the right to one vote per share, consist of 275,142,462 Common Shares and 100 4% Cumulative Redeemable Preference Shares.

(This Management Proxy Circular was first mailed to shareholders on or about March 24, 2005.)

-5-

Principal Holders and Certain Beneficial Owners of Voting Shares

As of March 10, 2005, the Corporation’s outstanding voting shares, each of which carries the right to one vote per share, consist of 275,142,462 Common Shares and 100 4% Cumulative Redeemable Preference Shares.

The “Shell” Transport and Trading Company, p.l.c. (“Shell T&T”), an English company and Royal Dutch Petroleum Company (“Royal Dutch”), a Netherlands company (together hereinafter referred to as the “Parent Companies”) hold, respectively, 40 per cent and 60 per cent of Shell Petroleum N.V., a Netherlands company (“SPNV”). The Parent Companies and SPNV hold directly, or through Shell Investments Limited (“SIL”), a wholly owned Canadian subsidiary of SPNV, approximately 78 per cent of the Common Shares or 214,435,386 shares of that class and 100 per cent of the 4% Cumulative Redeemable Preference Shares, representing approximately 78 per cent of the outstanding voting shares of the Corporation. The address of SIL is 400 – 4th Avenue S.W., Calgary, Alberta, T2P 0J4, the address of SPNV and Royal Dutch is 30 Carel van Bylandtlaan, 2596 HR, The Hague, The Netherlands and the address of Shell T&T is Shell Centre, London, England, SE1 7NA.

To the knowledge of the directors and officers of the Corporation, no other person beneficially owns directly or indirectly, or exercises control or direction over, shares carrying more than 10 per cent of the votes attached to any class of shares of the Corporation entitled to vote in connection with any matters being proposed for consideration at the Meeting.

As of March 10, 2005, each director or nominee director, and all directors and nominee directors as a group beneficially owned, directly or indirectly, or exercised control or direction over the number of Common Shares of the Corporation, Deferred Share Units of the Corporation and Priority and Ordinary Shares of the Parent Companies set forth in the following table. None of the foregoing individuals own any voting shares in any of the Corporation’s subsidiaries. The information in the table is based upon data furnished to the Corporation by, or on behalf of, the persons referred to in the table.

			Deferred
	Common Shares		Share Units		Shares of				Ordinary
	of the		of the		Royal Dutch				Shares of
	Corporation		Corporation		Priority		Ordinary		Shell T&T
D.H. Burney		3,282		2,959.59		–		–		–
I.J. Goodreau		939		756.45		–		–		–
K.L. Hawkins		4,313		3,227.70		–		–		–
D.W. Kerr		2,000		893.26		–		–		1,000
W.A. Loader		–		–		–		–		51,943
C. Mather		500		3,058.10		–		–		871
R.W. Osborne		2,594		–		–		–		–
R.J. Routs		500		–		6		–		–
R. Royer		8,690		–		–		–		–
N.C. Southern		3,638		–		–		–		–
J. van der Veer		–		–		6		10,512		–
Directors and nominees as a group		26,456		10,895.10		12		10,512		53,814

-6-

Election of Directors

The Board of Directors is elected annually and may consist of such number as may be fixed from time to time by the directors being not less than 8 nor more than 15 directors. By a resolution of the Board, the number of directors to be elected at the Meeting has been fixed at 10. The term of office for each person elected is until the next annual meeting or until his or her successor is duly elected or appointed. All nominees have consented to being named in this Management Proxy Circular and to serve as directors if elected. Management does not contemplate that any of the nominees will be unable to serve as a director, but if that should occur for any reason prior to the Meeting the persons named in the enclosed form of proxy reserve the right to vote for other nominees in accordance with their best judgment.

Information Concerning Nominees for Election to the Board of Directors

The following pages set out information concerning each person that management of the Corporation proposes to nominate for election as a director. J. van der Veer, a director since 2003, will not be standing for re-election at the Meeting.

All of the nominees are currently directors of the Corporation, with the exception of R.J. Routs who will be standing for election at the Meeting.

Derek H. Burney, O.C., 65, of Ottawa, Ontario, has served on the Board of Directors of the Corporation since April 25, 2001.

Since 2004, Mr. Burney has been Chairman of New Brunswick Power Corporation, a Crown Corporation with the legislated mission to provide for the electricity needs of the Province of New Brunswick. New Brunswick Power Corporation is the largest electric utility in Atlantic Canada.

Prior to that, Mr. Burney served as President and Chief Executive Officer of CAE Inc. from 1999 to 2004. CAE Inc. is the world’s premier provider of simulation and control technologies for training and optimization solutions for the aerospace and defense sectors.

Mr. Burney also serves as a director of Quebecor World Inc. and is an Advisory Board Member of Idelix Software Inc. Mr. Burney is a Senior Distinguished Fellow and Adjunct Professor of Carleton University. Lead Director.

Chair of the Nominating and Governance Committee and member of the Management Resources and Compensation Committee and the Reserves Committee.

-7-

	Ida J. Goodreau, 53, of Vancouver, British Columbia, has served on the Board of Directors of the Corporation since April 24, 2003. Ms. Goodreau has been President and Chief Executive Officer of Vancouver Coastal Health Authority since 2002. The Vancouver Coastal Health Authority shares responsibility with five other geographical health authorities and ministries of the British Columbia provincial government for planning, delivering, monitoring and evaluating health care programs in the province. Ms. Goodreau also serves as a director of Terasen Inc. From 2000 to 2002, Ms. Goodreau was Senior Vice-President of Global Optimization & Human Resources, Norske Skog Industries.	Member of the Audit Committee and the Management Resources and Compensation Committee.
	Kerry L. Hawkins, 64, of Winnipeg, Manitoba, has served on the Board of Directors of the Corporation since October 1, 1997. Mr. Hawkins has been President of Cargill Limited since 1982. Cargill Limited is a Canadian agricultural company. Mr. Hawkins also serves as a director of TransCanada PipeLines Limited, TransCanada Corporation, Hudson’s Bay Company and Nova Chemicals Corporation, and is Chairman of the Board of Saskferco Products Inc.	Chair of the Audit Committee and member of the Nominating and Governance Committee and the Reserves Committee.
	David W. Kerr, 61, of Toronto, Ontario, has served on the Board of Directors of the Corporation since April 24, 2003. Mr. Kerr has been Chairman and a director of Noranda Inc. since 2002. From 2001 to 2002 Mr. Kerr was Chairman and Chief Executive Officer of Noranda Inc., and from 1990 to 2001 Mr. Kerr served as President and Chief Executive Officer of Noranda Inc. Noranda Inc. is a leading international mining and metals company and is one of the world’s largest producers of zinc and nickel and a significant producer of copper, primary and fabricated aluminum, lead, silver, gold, sulphuric acid and cobalt. Mr. Kerr also serves as a director of Sun Life Financial Inc. and Brascan Corp.	Chair of the Reserves Committee and member of the Audit Committee and the Nominating and Governance Committee.

-8-

W. Adrian Loader, 56, of Guildford, England, has served on the Board of Directors of the Corporation since September 27, 2003. Mr. Loader has served as Director, Strategic Planning, Sustainable Development and External Affairs for Shell International Limited since June, 2003. Prior to that, Mr. Loader was President, Shell Oil Products Europe from 1999 to June, 2003. The principal businesses of all Shell and Royal Dutch companies are oil, natural gas, chemicals and renewable resources. Mr. Loader also serves as a director of other Royal Dutch/ Shell Group companies and Alliance Unichem plc.

Clive Mather, 57, of Calgary, Alberta, has served on the Board of Directors of the Corporation since August 1, 2004. Mr. Mather has served as President and Chief Executive Officer of Shell Canada Limited since August 1, 2004. Shell Canada is one of the largest integrated petroleum companies in Canada. From 2002 to 2004, Mr. Mather served as Chairman of Shell UK Limited and Head of Global Learning of Shell International Limited. From 2001 to 2002, Mr. Mather served as Special Advisor to the Chairman of the Committee of Managing Directors of Shell International Limited. From 1999 to 2001, Mr. Mather served as Chief Executive Officer of Shell Services International Ltd. Prior to this, Mr. Mather served as Director International of Shell International Limited. Mr. Mather is currently a director and President of SIL and a director of Shell Chemicals Canada Ltd., Shell Canada Products Limited and Shell Canada OP Inc.

-9-

	Ronald W. Osborne, 58, of Toronto, Ontario, has served on the Board of Directors of the Corporation since April 25, 2001. Mr. Osborne was President and Chief Executive Officer of Ontario Power Generation Inc. from 1999 to 2003. Ontario Power Generation Inc. owns the power generation assets supplying approximately 85 per cent of all electricity consumed in Ontario. Mr. Osborne also serves as a director of Sun Life Financial Inc., Torstar Corporation, St. Lawrence Cement Group Inc., Massachusetts Financial Services Company and Four Seasons Hotels Inc., and is a trustee of RioCan Real Estate Investment Trust. Mr. Osborne also served as a director of Air Canada from 1999 to 2004. Air Canada sought and received protection from bankruptcy on April 1, 2003 and exited from this protection on September 30, 2004 with a reorganized corporate structure. Mr. Osborne resigned as a director of Air Canada effective as of September 30, 2004.	Chair of the Management Resources and Compensation Committee and member of the Audit Committee and the Reserves Committee.
	Robert J. Routs, 58, of The Hague, The Netherlands, will be nominated for election to the Board of Directors of the Corporation on April 29, 2005. Mr. Routs is currently Managing Director of Royal Dutch Petroleum Company and a Group Managing Director of the Royal Dutch/ Shell Group (since 2003). From 2002 to 2003, Mr. Routs served as President and Chief Executive Officer of Shell Oil Products U.S., President of Shell Oil Company and Country Chair for Shell in the United States. From 2000 to 2002, Mr. Routs served as President and Chief Executive Officer of Equilon Enterprises LLC. Prior to that, Mr. Routs was Head of Shell International Resource and Technology Services Group (Shell Global Solutions).

-10-

	Raymond Royer, O.C., 66, of Ile Bizard, Quebec, has served on the Board of Directors of the Corporation since April 26, 2000. Mr. Royer has been President and Chief Executive Officer of Domtar Inc. since 1996. Domtar Inc. is a North American manufacturer of fine papers, pulp and forest products and owns a 50 per cent interest in Norampac Inc., a manufacturer of containerboard and corrugated containers. Mr. Royer also serves as a director of Domtar Inc. and Power Financial Corporation.	Member of the Audit Committee and the Management Resources and Compensation Committee.
	Nancy C. Southern, 48, of Calgary, Alberta, has served on the Board of Directors of the Corporation since April 25, 2001. Ms. Southern has been President and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited since January, 2003. Prior to that, Ms. Southern was Co-Chairman and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited from 2000 to December, 2002. ATCO Ltd. is a management holding company with operating subsidiaries engaged in regulated natural gas and electric operations, power generation, manufacturing, sale and leasing of relocatable workforce shelter products and other businesses. Canadian Utilities Limited is a holding company with operating subsidiaries engaged in natural gas and electrical energy utility operations, and in related non-regulated operations. Ms. Southern also serves as a director and Chief Executive Officer of certain other subsidiaries of ATCO Ltd. and Canadian Utilities Limited. Ms. Southern is a director of the Bank of Montreal and Akita Drilling Ltd. and is Executive Vice President of Spruce Meadows.	Member of the Management Resources and Compensation Committee and the Nominating and Governance Committee.

-11-

Interest of Informed Persons in Material Transactions

The Corporation, in the course of its regular business, engages in routine transactions at standard commercial rates with other affiliates of the Parent Companies, including provision of technical services and charters of ocean tankers. In addition, the Corporation is a party to a research cost sharing agreement with a subsidiary of SPNV.

During 2004, the Corporation purchased $3,961 million of crude oil, petroleum products, chemicals and services and sold $1,928 million of natural gas, petroleum products and chemicals from and to Shell International Trading Company and other affiliates of the Parent Companies. These transactions were made at standard commercial rates and terms.

In the ordinary course of business, the Corporation and its subsidiaries enter into transactions with other entities of which a director of the Corporation also serves as a director or officer. These other entities are identified in the Statement of Corporate Governance Practices attached as Appendix 2 to this Management Proxy Circular.

Composition of the Compensation Committee

The Board of Directors of the Corporation has delegated to the Management Resources and Compensation Committee (“MRCC”) responsibility for overseeing compensation programs for senior management of the Corporation. The Board of Directors appoints the MRCC annually. None of the members of the MRCC is or was an officer, employee or former officer or employee of the Corporation or any of its affiliates, nor are they eligible to participate in the Corporation’s executive compensation program. The MRCC met seven times during 2004 to fulfill its responsibilities and was comprised of five directors as of December 31, 2004: R.W. Osborne (Chairman), D.H. Burney, I.J Goodreau, R. Royer and N.C. Southern.

Report on Executive Compensation

Compensation Philosophy

The Corporation’s executive compensation program reflects the Corporation’s philosophy that executive compensation should:

• attract and retain high quality senior management with the necessary experience to create long term value;

• be consistent, fair and equitable across the business units of the Corporation;

• be based on competitive levels of pay for responsibility and performance that contribute to objectives established for the Corporation, its business units and the executive;

• align interests of senior management with the interests of the Corporation’s shareholders in creating value over the longer term; and

• have a significant component linked to the achievement of specific financial and non-financial measures and results.

-12-

Role of the Compensation Committee

In addition to approving compensation for senior management of the Corporation, including those listed in the Summary Compensation Table as Named Executive Officers, it is the responsibility of the MRCC to:

• review the performance of the President and Chief Executive Officer (“CEO”) based upon agreed targets and objectives;

• review and determine the compensation of the President and CEO;

• review and approve the annual recommendations of the President and CEO with respect to adjustments, if any, in the base salaries of each Named Executive Officer (as identified on page 20 of this Management Proxy Circular) as well as all other senior management;

• determine, annually, whether or not there will be any incentive awards for senior management;

• administer and grant share options under the Corporation’s Long Term Incentive Plan;

• administer the Corporation’s Deferred Share Unit Plan for Executive Officers;

• review new pension and benefit plans and any significant changes to such plans;

• review senior management succession plans;

• recommend candidates to the Board for appointment as officers of the Corporation; and

• engage, as required, independent consultants to provide input and advice on executive compensation matters.

Compensation Summary

Executive compensation is comprised of base salary, annual incentive pay, pensions, long term incentives and perquisites. The structure of the total compensation package varies in accordance with the level and nature of an employee’s position in the organization. Generally, the higher the level of position, the greater the portion of the compensation package that is variable and at risk. This recognizes the degree to which an employee is able to influence operational results.

In determining the compensation of senior management of the Corporation, the MRCC makes use of competitive compensation data to determine comparative positioning and considers internal relativity and individual skills, experience and performance when setting and adjusting compensation levels. Competitive compensation data from a comparator group comprised of Canadian companies from the integrated oil sector as well as a broader oil and gas market is used. In total there are approximately 20 companies in the oil and gas comparator group (the “Comparator Group”). These organizations are of comparable size, scope and complexity to the Corporation and are representative of the types of organizations with which the Corporation must compete for talent. For 2004, base salaries were targeted at the 50th percentile of the Comparator Group. If corporate, business unit and individual performance targets are met for the performance year, the annual incentive award is intended to position total cash compensation (base salary plus annual incentive pay) at the 75th percentile of the Comparator Group. Below target performance results in total cash compensation below the 75th percentile of the Comparator Group, while above target performance is designed to position total cash compensation above the 75th percentile of the Comparator Group.

Stock options (which attach tandem share appreciation rights (“SARs”), collectively referred to herein as “Options”) are reviewed separately from total cash compensation (see pages 22 and 23 of this Management Proxy Circular). The Corporation’s Long Term Incentive Plan has value only to the extent that additional shareholder value is created over time. Fifty per cent of the Options granted to senior management are

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performance-based and 50 per cent are time vested. Options are granted on the basis that the combined value of both performance-based and time vested Options will result in a value at the average of an integrated company comparator group (including Suncor, Imperial Oil, and Petro-Canada), based on expected value as determined by Black-Scholes valuation methodology if performance-based Options vest 50 per cent of the time.

Perquisites are considered a minor component of senior management compensation and periodic reviews are conducted and adjustments made, subject to the approval of the MRCC.

The Corporation strives to attract and develop high quality senior management with the necessary experience to create long-term value. An active program of expatriation with other members of the Royal Dutch/ Shell group of companies (the “Group Companies”) allows the Corporation to improve the competitiveness of its business and develop senior and high potential staff by providing them opportunities to gain operational and strategic experience they may not necessarily receive within Canada. The Corporation also benefits from reciprocal exchanges of talent within the Group Companies. Expatriate senior management who are on assignment with the Corporation may be compensated according to expatriate compensation programs, which are developed for and utilized by the other members of the Group Companies.

Base Salaries

Base salaries are set according to senior management’s duties and responsibilities, the degree of special skill and knowledge required to perform the role and a comparison to others inside as well as outside the organization in similar positions of responsibility and scope. The base salaries are reviewed annually and adjusted as appropriate, based on position, responsibilities, performance and competitive market data.

The MRCC approves adjustments to the base salary of the President and CEO. The MRCC approves base salary recommendations made by the President and CEO for the other senior management of the Corporation.

Annual Incentive Pay

The Corporation believes incentive pay rewards employees for their individual, business unit and corporate contributions. All staff employees in the Corporation participate in an annual incentive program based on a scorecard tool (the “Scorecard”). Senior management is also rewarded on the basis of Scorecard results. A substantial portion of senior management’s annual compensation is linked to the achievement of pre-defined corporate, business unit and individual targets and objectives. Target annual incentive payments are based on each senior manager’s position and level of responsibility within the Corporation. Targets are established as a percentage of base salary. If certain performance levels are achieved, annual incentive awards are payable and intended to provide amounts that are competitive with incentives that would be paid to other senior managers within the Comparator Group in similar circumstances. The Corporation’s Scorecard is used as the starting point in the annual incentive pay process for senior management and makes up the largest component of their annual incentive pay. Individual performance is taken into consideration when determining these awards and can increase or decrease the amount of the annual incentive award. A performance contract documents the targets and objectives to be achieved by an individual in the current fiscal year and may include elements such as Scorecard and business results, strategic milestones, leadership and overall contribution to the Corporation’s reputation and success. The MRCC has full discretion to determine whether or not awards will be paid in any year and, if so, the amount of the payments available under the annual incentive pay program in that year. For the Named Executive Officers, the target range is between 60 - 65 per cent of base salary and could range from 0 per cent if threshold is not met to between 100 - 130 per cent of annual base salary when outstanding Scorecard and individual results are achieved.

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In 2004, the Corporation’s common Scorecard measures were ROACE (Return On Average Capital Employed), ROACE Rank and Total Shareholder Return (“TSR”) Rank. “Rank” refers to the Corporation’s position relative to a comparator group of other Canadian integrated oil and gas companies. In addition to the Corporation’s common Scorecard measures, each business unit had measures and targets specific to their business unit.

For 2004, all business unit Scorecards (Exploration & Production, Oil Products, Oil Sands and Corporate) were above target. Annual incentive payments for senior management vary depending on their position in the Corporation and the relevant combination of business unit, corporate and individual performance.

Long Term Incentive Plan

Under the Long Term Incentive Plan (“LTIP”), Options to purchase Common Shares may be granted to senior management and other selected employees to link a part of their compensation to the interests of shareholders of the Corporation. The Corporation believes that the LTIP encourages achievement of long-term goals of the Corporation and therefore acts as a balance to the annual incentive pay program. The LTIP is administered by the MRCC. Annually, the number of Options granted is reviewed to ensure that the LTIP is competitive when compared with the Comparator Group.

The term of an Option is ten years from the date of grant and the strike price is the closing market price of the Common Shares on the date of grant. In 2004 the Corporation offered, subject to Option holder agreement, to amend all of its outstanding Options to include tandem SARs (approximately 98 per cent of Option holders have accepted). A SAR is a cash payment feature which provides the Option holder the right to surrender the exercisable Option for cancellation in return for a cash payment from the Corporation. The cash payment is based on the number of Options surrendered, multiplied by the amount by which the market price of the Common Shares at the time of surrender exceeds the strike price of the Option. The inclusion of the cash payment feature in existing and future Options enables the Corporation to provide similar benefits to Option holders without increasing dilution caused by increasing the number of outstanding Common Shares.

Annually, the MRCC grants Options to selected senior employees, including the Named Executive Officers, on a discretionary basis. The MRCC also grants Options, on a selected basis, to other employees whose skills have high future value to the Corporation. Generally, the size of the award increases with the level of responsibility of the employee. Grants are made without reference to outstanding awards held by the employee, but the MRCC does take into consideration the number of issued and outstanding Common Shares of the Corporation at the time of grant. The aggregate number of Common Shares that may be granted under Options to an individual cannot exceed 900,000 (0.33 per cent of the total number of issued and outstanding Common Shares as of the date hereof) and, as of December 31, 2004, no single Option holder meets or exceeds this limit. No Options are granted to non-employee directors, no Options are granted in respect of any securities other than Common Shares and no dividend or proxy voting rights are granted prior to an Option being exercised and Common Shares being acquired. In 2004, approximately 11 per cent of employees within the Corporation received Options.

For senior management, 50 per cent of the Options granted under the LTIP are time vested and have a 10-year term with vesting of one-third each year following the grant date. The other 50 per cent of the Options granted are performance-based. Performance-based Options have a 10-year term with vesting determination at three years following the grant date. For the performance-based Options to automatically vest, the comparative three year TSR must exceed the average of Imperial Oil, Petro-Canada and Suncor’s TSR. If the Corporation’s TSR does not meet the above target, the MRCC may determine, in its sole discretion, that all or a portion of the Options granted shall vest. In January 2005, the 2002 performance-

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based Options fully vested (100 per cent) as the Corporation’s overall TSR exceeded the average of this comparator group.

If a recipient of Options voluntarily ceases employment, the Options terminate over a range of periods based on the recipient’s age and eligibility for the Corporation’s pension plan. In the case of termination without cause, Options remain outstanding for two to five years, based on the recipient’s eligibility for the Corporation’s pension plan. Options are terminated on the date an employee is terminated for cause.

The Board of Directors may amend the LTIP, subject to obtaining all necessary shareholder and stock exchange approvals. The MRCC may also amend individual long term incentive agreements with the consent of the holder. LTIP awards are not transferable by the recipient otherwise than by will or the laws of succession.

With the approval of the Toronto Stock Exchange, and upon the recommendation of the MRCC, the Board of Directors approved the following administrative amendments to the LTIP in 2004:

• changed the references in the LTIP from “Class “A” Common Shares” to “Common Shares”;

• removed transition provisions that were included when the LTIP was introduced in 1984 to replace a predecessor option plan;

• changed the method of determining the value of SARs such that the deemed fair market value of the Corporation’s Common Shares at the time of exercise of a SAR is the average of the daily high and low board lot trading prices on the last trading day in which a board lot of the Corporation’s Common Shares traded on the Toronto Stock Exchange;

• sought amendments to all existing but unexercised Options to attach SARs; and

• dissolved the Long Term Incentive Subcommittee and vesting the powers of that committee under the LTIP in the MRCC.

In addition, the Corporation also implemented the following changes to the LTIP in 2004 with the approval of the Toronto Stock Exchange and the shareholders of the Corporation:

• clarified the definition of employees eligible to participate in the LTIP;

• increased the aggregate number of Common Shares reserved for issuance under the LTIP by an additional 9,000,000 Common Shares;

• permitted the return of Option shares to the LTIP upon the exercise of a SAR; and

• deleted the time limitation period for SARs so that SARs are exercisable during the same time periods as Options.

Share Ownership Guidelines

To support the Corporation’s belief in share ownership by executive officers, the Corporation introduced Share Ownership Guidelines effective December 1, 2004 that require shareholdings in the Corporation proportionate to an individual’s compensation and position. Over a period of time, executive officers are expected to accumulate shareholdings having a value at least equal to a multiple of their annual base salary. The guidelines require holdings by the CEO of two times base salary, by Canadian Senior Vice Presidents and the Chief Financial Officer (“CFO”) of one times base salary and, on a prospective basis, expatriate Senior Vice Presidents of 50 per cent of base salary. Share ownership includes Common Shares and Deferred Share Units (“DSUs”). The guidelines are required to be attained by the later of December 1, 2009 or five years after appointment to certain designated positions.

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Executive Deferred Share Unit Plan

The purpose of the Executive Deferred Share Unit Plan is to assist the CEO, CFO and the Canadian Senior Vice Presidents in attaining their required shareholdings under the Share Ownership Guidelines. This plan also strengthens the alignment of interests between senior executive officers and shareholders by linking annual incentive awards to the future value of the Corporation’s Common Shares. Under the plan, each participant may elect to receive all or a percentage of his or her annual incentive pay in the form of DSUs.

A participant is required to make an irrevocable election to take part in the plan prior to December 31 of the relevant fiscal year. When annual incentive payments are determined at the end of the fiscal year, the amount elected is converted to DSUs based on the closing price of the Common Shares on the Toronto Stock Exchange on the third business day following the public disclosure of the Corporation’s year-end financial results.

DSUs earn dividend equivalents in the form of additional DSUs at the same rate as dividends on the Corporation’s Common Shares. The participant is not allowed to convert the DSUs until he or she has ceased to be an employee or director of the Corporation or an affiliate. The cash value of the DSUs is equivalent to the market value of the Common Shares when conversion takes place.

Compensation of the President and CEO

Ms. Linda Cook was President and CEO until July 31, 2004 and Mr. Clive Mather assumed these duties effective August 1, 2004.

Ms. Cook, who was seconded to the Corporation from within the Group Companies, had her total compensation package established based on internal comparisons to that of her global peer group within the Group Companies. The Canadian competitive market is also considered when determining and adjusting compensation. Ms. Cook’s compensation package was designed to ensure continuity and her ultimate reintegration with the Group Companies.

Mr. Mather is seconded to the Corporation from Shell International Limited and participates in the Corporation’s base salary, annual incentive pay program and LTIP on the same basis as other Canadian senior management of the Corporation.

Base Salary

Mr. Mather’s base salary was determined on the same basis as other Canadian senior management. His salary was targeted at the 50th percentile of the competitive market based on market data for similar roles and levels of responsibility within the Comparator Group. As with other senior management, the President and CEO’s salary is reviewed annually and adjustments are based on competitive market data and performance compared to established targets and objectives.

Annual Incentive Pay

At the beginning of 2004, a performance contract with identified targets and objectives was established between Ms. Cook and the MRCC with identified targets and objectives which included:

• the profitability of the Corporation as determined by ROACE compared to targets established at the beginning of the performance cycle;

• the profitability and financial performance of the Corporation compared to other integrated oil companies as measured by ROACE Rank and TSR Rank;

• the strategic positioning of the Corporation for profitable growth and future success;

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• the safety and environmental performance of the Corporation;

• the operational performance of the business as measured by key performance metrics; and

• the leadership of the Corporation and the strength of its people and succession plans.

Ms. Cook’s annual incentive pay from January 1, 2004 until July 31, 2004 was determined by the Corporation’s Scorecard results. Additionally, an assessment of Ms. Cook’s individual performance compared to the objectives listed in the President and CEO’s performance contract was also completed. Ms. Cook’s target bonus was established at 65 per cent of base salary to be modified up or down based on the degree to which the Corporate Scorecard measures were met. The maximum annual incentive pay was restricted to 100 per cent of base salary on the basis of consistency with the Parent Companies’ plan.

Mr. Mather’s annual incentive target is 65 per cent of annual base salary and is modified up or down based on Corporate Scorecard results and the assessment of his individual performance by the MRCC. Mr. Mather’s annual incentive may not exceed 130 per cent of his annual salary.

Mr. Mather adopted Ms. Cook’s performance targets and objectives for 2004, with support from the MRCC, when he was appointed President and CEO. Ms. Cook’s and Mr. Mather’s annual incentive payments for 2004 recognized their role in effectively leading the Corporation in a year where overall Scorecard results were above target. Specifically,

• the profitability of the Corporation exceeded expectations in 2004, with a ROACE that was above the established target;

• the profitability and financial performance of the Corporation compared to the integrated oil comparator group was met or exceeded;

• the objectives set for strategic positioning of the Corporation for profitable growth and success exceeded target;

• the Corporation’s safety and environmental performance was at or above target;

• operational results varied by business unit and were reflected in the outcome of each business unit Scorecard but were primarily above target; and

• progress in the area of succession planning and leadership development was on target.

Ms. Cook’s 2004 annual incentive payment from the Corporation was approximately 90 per cent of her base salary for the time she was with the Corporation.

Mr. Mather’s 2004 annual incentive payment from the Corporation was approximately 90 per cent of his base salary for the time he was with the Corporation.

Long Term Incentives

Ms. Cook was eligible to participate in the LTIP. Her annual award was based on a grant of stock options (time vested and performance-based) that was equivalent in value to what she would have received under the Group Companies’ stock option program. When Ms. Cook left the Corporation to commence her duties as Managing Director of Royal Dutch Petroleum Company, she was required to surrender her stock options (see note 14 to the Summary Compensation Table).

Mr. Mather is eligible to participate in the LTIP. As with other senior management, Option grants are considered on an annual basis and take into account the President and CEO’s comparative market position when determining how many Options will be granted.

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As is consistent with other employees on expatriate assignment from within the Group Companies, the MRCC felt it appropriate that the Corporation provide Ms. Cook, Mr. Mather and their families with housing assistance in Calgary, Alberta.

Report presented by:

R.W. Osborne, Chairman

D.H. Burney

I.J. Goodreau

R. Royer

N.C. Southern

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Summary Compensation Table

The following table presents a summary of the compensation paid to each individual who served as President and CEO and CFO of the Corporation for the past three years and the next three highest paid executive officers of the Corporation in respect of the financial year ended December 31, 2004 (collectively referred to herein as the “Named Executive Officers”). All monetary amounts are expressed in Canadian dollars unless otherwise noted.

												Long-Term
			Annual Compensation									Incentives(1)
												Securities
						Annual						Under
						Incentive			Other Annual			Options/SARs		All Other
Name and			Salary			Pay			Compensation			Granted		Compensation
Principal Position	Year		($)			($)			($)(2)			(#)		($)
C. Mather		2004		347,917	(3)		320,000	(4)(5)		104,280	(6)		Nil		427,902 (7)(8	)
President and CEO
L.Z. Cook		2004		581,409	(9)		470,000	(10)		338,085	(12)		120,000		161,484 (13)(	14)
President and CEO		2003		421,250	(9)		350,000	(11)		230,374	(12)		Nil		147,520(13)
T.W. Faithfull		2003		716,449	(15)		475,000			57,672	(16)		180,000		130,656(17)
President and CEO		2002		875,000			575,000			112,487	(16)		180,000		78,610(18)
C.L. Williams		2004		345,000	(19)		305,000			–			80,000		Nil
Chief Financial Officer		2003		266,353			195,000	(20)		–			Nil		74,350(21)
S. Støtvig		2003		94,530	(22)		65,000			15,315	(23)		70,000		9,216(24)
Chief Financial Officer		2002		338,750			160,000			93,543			70,000		37,190(24)
D.M. Weston		2004		515,661			410,816	(25)		71,290	(26)		22,000		307,951(27)
Senior Vice President, Products		2003		404,749			264,086	(25)		59,250	(26)		Nil		306,784(27)
H.I. Kilgour		2004		383,750			400,000			–			80,000		Nil
Senior Vice		2003		323,750			290,000			–			80,000		Nil
President, E&P		2002		251,000			165,000			–			20,000		Nil
N.J. Camarta		2004		403,750			275,000			–			80,000		Nil
Senior Vice		2003		378,750			215,000			–			80,000		Nil
President, Oil Sands		2002		348,750			140,000			–			80,000		Nil

Notes:

(1)	The Corporation has not issued any Restricted Shares or Restricted Share Units and does not have a “long-term incentive plan” as that term is described under applicable disclosure rules.
(2)	Unless otherwise noted, perquisites and other personal benefits do not exceed the lesser of $50,000 and 10 per cent of the total annual salary and annual incentive pay.
(3)	Mr. Mather is seconded from Shell International Limited and joined the Corporation on August 1, 2004.
(4)	Mr. Mather’s annual incentive pay is based on the Corporation’s business performance and his salary for the period from August 1, 2004 to December 31, 2004. The Corporation paid for this amount. In April 2005, Mr. Mather will receive a bonus payment from Shell International Limited for the first seven months of 2004, and this amount is not included in the Summary Compensation Table.
(5)	Mr. Mather elected to convert 75 per cent or $240,000 of his bonus to DSUs.
(6)	Includes dependent education assistance and taxable benefits in the amount of $60,851, and $28,688 for housing assistance and taxable benefits. Other expenses and benefits in other Annual Compensation include vehicle, parking and tax equalization protection.
(7)	Mr. Mather received a $50,000 relocation allowance as per the expatriate compensation programs of the Group Companies.
(8)	Mr. Mather is seconded from Shell International Limited and participates in The Shell Overseas Contributory Pension Fund (the “SOCPF”). The Corporation’s cost of contribution to the SOCPF for Mr. Mather is $377,902, which includes a one-time special pension fund contribution in the amount of $280,228. See “Retirement and Savings Program”.

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(9)	Ms. Cook joined the Corporation from Shell Expatriate Employment US Inc. (“SEEUS”) on July 1, 2003 and left her position as President and CEO effective July 31, 2004 to join Royal Dutch Petroleum Company. Her salary includes an amount of $52,536 for vacation pay that was outstanding as of the date of her departure.
(10)	Ms. Cook’s 2004 bonus is based on the Corporation’s business performance and her salary for the period from January 1 to July 31, 2004. The Corporation paid for this amount.
(11)	In April 2004, Ms. Cook received a payment in the amount of US$240,000 related to service prior to joining the Corporation in 2003. This amount was paid for by Shell International Limited and is not included in the Summary Compensation Table.
(12)	Includes tax reimbursement and payments on income as per the expatriate compensation programs of the Group Companies in the amount of $258,218 for 2004 and $75,834 for 2003. Other expenses and benefits in Annual Compensation include housing, vehicle, parking and a commodities and services allowance including dependent education expenses in 2003 in the amount of $71,652 as per the expatriate compensation programs of the Group Companies.
(13)	Ms. Cook was seconded from SEEUS. SEEUS is a participating company in retirement programs for Group Company employees such as Ms. Cook. The Corporation’s cost of contribution to two of the US pension plans for Ms. Cook was $111,098 in 2004 and $22,364 for 2003. Additional contributions of US $106,668 made to the retirement programs on behalf of Ms. Cook for the period July to December 2003 were not charged to the Corporation. These additional contributions are not represented in the Summary Compensation Table.
(14)	A payment of $38,100 was made to Ms. Cook in recognition of the requirement to surrender her Shell Canada stock options upon her move to Royal Dutch Petroleum Company. The payment was based on the difference between the grant price and the price of the Common Shares on July 26, 2004 multiplied by 10,000 stock options (50 per cent of the number of stock options that would have vested after one year).
(15)	Mr. Faithfull resigned from his position as President and CEO of the Corporation effective July 31, 2003. His salary includes an amount of $160,050 for vacation pay that was outstanding as of the date of his resignation.
(16)	Includes housing and taxable benefits as per the expatriate compensation programs of the Group Companies for 2003 of $49,344 and for 2002 of $84,590.
(17)	Mr. Faithfull was seconded from Shell International Limited and participated in the SOCPF. The amount of $130,656 represents the cost of contribution to the SOCPF for Mr. Faithfull. See “Retirement and Savings Program”.
(18)	Mr. Faithfull received a special one-time retirement payment from Shell International Limited in the amount of $239,282 in 2003. This payment is not included in the Summary Compensation Table.
(19)	Ms. Williams re-joined Shell Canada from an affiliate company as Chief Financial Officer effective April 1, 2003.
(20)	Ms. William’s 2003 bonus was for performance from March 10, 2003 to December 31, 2003.
(21)	Ms. Williams received a relocation allowance of $74,350.
(22)	Mr. Støtvig retired from the Corporation effective March 31, 2003. His salary includes an amount of $8,280 for vacation pay that was outstanding as of the date of his retirement.
(23)	Includes housing and taxable benefits as per the expatriate compensation programs of the Group Companies of $14,754 for 2003 and $59,016 for 2002.
(24)	Mr. Støtvig was seconded from Shell International Limited and participated in Shell International Limited’s pension plan. This represents the Corporation’s cost of contribution to Shell International Limited’s pension plan for Mr. Støtvig. See “Retirement and Savings Program”.
(25)	Mr. Weston is seconded from Shell International Limited and participates in Shell International Limited’s Variable Pay Program. In April 2004, Mr. Weston received a bonus of $264,086 for the 2003 performance year. The Corporation pays for amounts awarded under this program.
(26)	Includes housing and taxable benefits as per the expatriate compensation program of the Group Companies for 2004 of $68,850 and for 2003 of $57,377.
(27)	Mr. Weston is seconded from Shell International Limited and participates in the SOCPF. The Corporation’s cost of contribution to the SOCPF for Mr. Weston for 2004 is $307,951, which includes a one-time special pension fund contribution in the amount of $167,300, and for 2003 $280,555, which included a one-time special pension fund contribution in the amount of $186,896. See “Retirement and Savings Program”.

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Options and Share Appreciation Rights

For a description of the Corporation’s Long-Term Incentive Plan see “Report on Executive Compensation – Long Term Incentive Plan” on pages 15 and 16 of this Management Proxy Circular.

The following tables present details of grants to the Named Executive Officers during 2004.

Option/SAR Grants During the Most Recently Completed Year

									Market Value
									of Securities
					% of Total				Underlying
		Securities Under			Options/SARs				Options/SARs
		Options/SARs			Granted to		Exercise or		on the Date
		Granted			Employees in		Base Price		of Grant
Name		(#)			Financial Year		($/Security)		($/Security)		Expiration Date
	C. Mather		Nil			Nil		Nil		Nil		N/A
	L.Z. Cook		120,000	(1)		7.08		62.55		62.55		N/A
	C.L. Williams		40,000	(2)		2.36		62.55		62.55		January 27, 2014
			40,000	(3)		2.36		62.55		62.55		January 27, 2014
	D.M. Weston		11,000	(2)(4)		0.65		62.55		62.55		January 27, 2014
			11,000	(3)(4)		0.65		62.55		62.55		January 27, 2014
	H.I. Kilgour		40,000	(2)		2.36		62.55		62.55		January 27, 2014
			40,000	(3)		2.36		62.55		62.55		January 27, 2014
	N.J. Camarta		40,000	(2)		2.36		62.55		62.55		January 27, 2014
			40,000	(3)		2.36		62.55		62.55		January 27, 2014

Notes:

(1)	All of Ms. Cook’s stock options granted in 2004 were cancelled when Ms. Cook returned to Royal Dutch Petroleum Company (see note 14 to the Summary Compensation Table).
(2)	Time vested options/SARs.
(3)	Performance-based options/SARs.
(4)	Reflects expected value of award levels received by peers employed by the Group Companies.

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The following table presents details of exercises of Options during 2004 and related year-end values for the Named Executive Officers.

Aggregated Option/SAR Exercises During the Most Recently Completed

Financial Year and Financial Year-End Option/SAR Values

Value of Unexercised in-

Securities

Aggregate

Unexercised Options/SARs

the-Money Options/SARs at

Acquired on

Value

at December 31, 2004

December 31, 2004

Exercise

Realized

(#)

($)

Name

(#)

($)

Exercisable

Unexercisable

Exercisable

Unexercisable

C. Mather

Nil

Nil

Nil

Nil

Nil

Nil

L.Z. Cook

Nil

Nil

Nil

Nil

Nil

Nil

C. Williams

8,000

402,140

54,100

80,000

2,849,646

1,395,200

D.M. Weston

Nil

Nil

0

22,000

0

383,680

H.I. Kilgour

Nil

Nil

76,764

153,336

3,495,555

3,896,559

N.J. Camarta

16,800

869,089

187,549

200,001

8,767,401

5,543,368

Securities Authorized for Issuance Under Equity Compensation Plans

The following table shows, as of December 31, 2004, compensation plans under which equity securities of the Corporation are authorized for issuance from treasury. This information relates to the LTIP which has previously been approved by shareholders. There are no equity compensation plans requiring the issuance of Common Shares of the Corporation not previously approved by shareholders. Please refer to the description of the LTIP under “Report on Executive Compensation – Long Term Incentive Plan” on pages 15 and 16 of this Management Proxy Circular.

Plan Category	(A) Number of Securities	(B)	(C) Number of Securities Remaining
	to be Issued Upon	Weighted - Average	Available for Future Issuance Under
	Exercise of	Exercise Price of	Equity Compensation Plans
	Outstanding Options	Outstanding Options	(excluding Securities in column (A))
	(#)		(#)
Equity Compensation
Plans approved by	6,110,000	$45.35	9,991,000
Securityholders
Equity Compensation
Plans not approved by	Nil	Nil	Nil
Securityholders
Total	6,110,000	$45.35	9,991,000

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Retirement and Savings Program

The Corporation’s Retirement and Savings Program (including the Shell Savings Fund described below) applies to all employees of the Corporation and certain of its subsidiaries, excluding expatriates from other Group Companies who retain coverage with their home base company.

The pension plan design was amended January 1, 1994 with two components, a defined contribution segment and a defined benefit segment (which is non-contributory save for an optional top-up funded by employee contributions). There are no Named Executive Officers in the defined contribution segment. The defined benefit segment is designed to provide a regular pension annuity ascertained by multiplying an individual’s average final earnings (basic salary plus annual incentive pay up to 20 per cent of basic salary if age is 50 and age plus service equals at least 65) for the best three consecutive years of the last ten years of service by 1.75 per cent which is then multiplied by the number of years of defined benefit accredited service from January 1, 1994. Pension is discounted if retirement is initiated prior to achieving age 55 and 80 points (age plus total years of accredited service). Messrs. Camarta and Kilgour and Ms. Williams participate in the defined benefit segment of the registered pension plan.

An individual participating in the defined benefit segment of the registered pension plan has the option to purchase an additional annuity ascertained by multiplying an individual’s average final earnings (basic salary plus annual incentive pay up to 20 per cent of basic salary if age is 50 and age plus service equals at least 65) for the best three out of ten years of service by 0.25 per cent, which is then multiplied by the number of years for which the annuity has been purchased. Premiums for the optional annuity are paid for by the individual and are based on age and years of service. The premium is reviewed annually by the Corporation’s actuary and adjusted as appropriate.

For service prior to January 1, 1994 the pension plan design (which was non-contributory) provides a regular pension annuity ascertained by multiplying an individual’s average final earnings for the best five consecutive years of the last ten years of service (basic salary plus annual incentive pay up to 20 per cent of basic salary if age is 50 and age plus service equals at least 65) by one per cent up to AFYMPE (Average Final Yearly Maximum Pensionable Earnings as set for CPP) and two per cent above AFYMPE, which is then multiplied by the number of years of accredited service up to December 31, 1993 (maximum 35). In addition, a bridge benefit of average final earnings for the best five consecutive years of the last ten years of service multiplied by one per cent up to AFYMPE multiplied by years of accredited service is payable up to and including the month of the individual’s 65th birthday. A portion of the regular pension annuity is funded through the Shell Savings Fund. The Shell Savings Fund is registered with the Canada Revenue Agency as a deferred profit-sharing plan. After two years completed service, the Corporation and its participating subsidiaries paid into the Shell Savings Fund an amount equal to a percentage of the individual’s basic salary, according to the length of accredited service; namely at a rate of five per cent during the third, fourth, fifth and sixth year of service and at a rate of 10 per cent thereafter (with a maximum payment of $2,500 per year commencing in 1985) to a maximum of 35 years. Contributions to the Shell Savings Fund by the Corporation and its participating subsidiaries ceased effective December 31, 1993. All employees eligible to retire prior to January 1, 1997 remain under the provisions of the program outlined in this paragraph. None of the Named Executive Officers were eligible to retire prior to January 1, 1997.

It is the Corporation’s practice to retire senior management at age 60. In light of this earlier than normal retirement age, the Corporation provides a Senior Staff Retirement Plan, which allows the senior executive who retires at age 60 to elect to receive either:

• a lump-sum payment equal to final salary plus a three year rolling average of pensionable annual incentive pay received immediately prior to retirement date multiplied by two; or

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• a supplementary pension equivalent to the straight-life annuity that can be provided by final salary plus a three year rolling average of pensionable annual incentive pay received immediately prior to retirement date multiplied by 1.5 which provides benefits consistent with the Corporation’s Retirement and Savings Program.

The following table shows estimated annual benefits payable upon retirement from the Corporation’s Retirement and Savings Program up to age 65. At age 65, the bridge benefit for service prior to January 1, 1994 ceases. Some or all of this bridge benefit may be replaced by government pension benefits.

Pension Plan Table⁽¹⁾

Years of Service
Remuneration(2)		15		20		25		30		35
	200,000	$	60,000	$	80,000	$	100,000	$	120,000	$	140,000
	250,000		75,000		100,000		125,000		150,000		175,000
	300,000		90,000		120,000		150,000		180,000		210,000
	350,000		105,000		140,000		175,000		210,000		245,000
	400,000		120,000		160,000		200,000		240,000		280,000
	450,000		135,000		180,000		225,000		270,000		315,000
	500,000		150,000		200,000		250,000		300,000		350,000
	550,000		165,000		220,000		275,000		330,000		385,000

Notes:

(1)	Based on total Retirement and Savings Program entitlement, including bridge benefits, optional 0.25 per cent annuity and Shell Savings Fund annuity (see “Retirement and Savings Program”).
(2)	Calculation based on remuneration being equal to average final earnings (see “Retirement and Savings Program”). Remuneration comprises salary and up to 20 per cent of basic salary (if age is 50 and age plus service equals at least 65).

The following table sets forth the years of accredited service as of December 31, 2004 for each of the Named Executive Officers:

Named Executive Officer	Years of Accredited Service
C. Mather	Nil
L.Z. Cook	Nil
C.L. Williams	20 years
D.M. Weston	Nil
H.I. Kilgour	28 years
N.J. Camarta	29 years

Ms. Cook did not and Messrs. Mather and Weston do not participate in the Corporation’s Retirement and Savings Program as they continue membership in various pension plans of the Group Companies. The Corporation’s cost of contributions to such pension plans for 2004 was $377,902 for Mr. Mather, $111,098 for Ms. Cook and $307,951 for Mr. Weston (see notes 8, 13 and 27 to the Summary Compensation Table on pages 20 and 21 of this Management Proxy Circular).

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Indebtedness

In 2003 the Corporation provided a housing assistance loan to Sam Spanglet, a Vice President of the Corporation, for relocation. The loan is in the amount of $300,000 and is secured by a first mortgage upon Mr. Spanglet’s principal residence.

The loan is without interest, however it is repayable upon the earlier of the sale of the residence or within 90 days of Mr. Spanglet’s retirement. In lieu of interest, the Corporation is entitled to receive one-half of any appreciation of the residence upon its sale. The amount repayable upon such sale will be reduced to the extent the property declines in value.

Five Year Total Shareholder Return Comparison

The following graph assumes that $100 was invested on December 31, 1999 in the Corporation’s Common Shares, the S&P/ TSX Composite Index and the S&P/ TSX Integrated Oil and Gas Index, respectively, and all dividends were reinvested.

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Compensation of Directors

Annual Retainers and Attendance Fees

Effective January 1, 2005, annual retainers and attendance fees are paid to the members of the Board of Directors on the following basis:

Board Member	$50,000
Lead Director	$10,000
Audit Committee Member	$7,000
Audit Committee Chair	$10,000
Management Resources and Compensation Committee Member	$5,000
Management Resources and Compensation Committee Chair	$7,000
Nominating and Governance Committee Member	$5,000
Nominating and Governance Committee Chair	$7,000
Reserves Committee Member	$5,000
Reserves Committee Chair	$7,000
Per-meeting fee for Board (personal attendance)	$2,000
Per-meeting fee for Board (conference call attendance)	$1,000
Per-meeting fee for Committees (personal attendance)	$1,500
Per-meeting fee for Committees (conference call attendance)	$750

The director selected to be Chairman of the meetings of the Board is entitled to receive an additional $75,000 per annum. Directors who are employees of the Corporation or of the Parent Companies or of any affiliate thereof do not receive any directors’ fees.

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Directors’ Compensation Plans

All directors who are not employees of the Corporation or of the Parent Companies or of any affiliate thereof must elect, on an annual basis, to participate in either the Director Share Compensation Plan (the “DSC Plan”) or the Non-Employee Directors’ Deferred Share Unit Plan (the “DSU Plan”). The principal features of these plans are summarized below.

DSC Plan	DSU Plan
Participation – Each participating director in the DSC Plan:	Participation – Each participating director in the DSU Plan:
(a) receives 50 per cent of the fees payable to him or her for serving on the Board (excluding committee fees) in the form of Common Shares; and	(a) receives 50 per cent of Board fees (excluding committee fees) in the form of DSUs; and
(b) may elect to receive any additional percentage of Board fees and any percentage of committee fees in the form of Common Shares.	(b) may elect to receive any additional percentage of Board fees and any percentage of committee fees in the form of DSUs.
The Common Shares are purchased on the open market by CIBC Mellon Trust Company, who acts as custodian under the DSC Plan, after the end of each calendar quarter and are credited to each participating director’s account.	When fees are payable (on a quarterly basis), the percentage(s) of fees elected are converted to DSUs which have a value equal to the market price of the Corporation’s Common Shares at the end of such quarter.
Dividends – The Common Shares purchased under the DSC Plan attract dividends.	Dividends – The DSUs attract dividends in the form of additional DSUs at the same rate as dividends on the Common Shares.
Receipt of Compensation – Once per calendar year, a participating director may instruct the custodian to sell or transfer any or all of the Common Shares credited to his or her account. Upon termination of Board service, any Common Shares and dividends remaining in the participating director’s account are delivered to such director and the account is closed.	Receipt of Compensation – A participating director is not eligible to convert DSUs until his or her termination of Board service and, if applicable, cessation of employment with the Corporation or the Parent Companies or any affiliate thereof. Following such time, and in any event prior to December 31 of the next year, the DSUs credited to such director are converted to cash in an amount equivalent to the market value of the Common Shares when the conversion is effective.

The DSC and DSU Plans are administered by the Nominating and Governance Committee. All costs associated with the administration of both plans are borne by the Corporation.

Directors as such do not participate in any pension, retirement or other such plan of the Corporation and its subsidiaries.

Director Share Ownership Requirements

Outside directors, who are not employees of the Corporation or of the Parent Companies or of any affiliate thereof, are required to own either Common Shares or DSUs equivalent to three years’ Board annual retainer fees (currently $50,000 per year) after five years of Board service.

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Report of the Audit Committee

Membership

The Board of Directors appointed the Audit Committee at the meeting of the Board on April 30, 2004 and chose K.L. Hawkins to be Chairman of the committee.

The Audit Committee has five members and each member is an independent director, as defined by Multilateral Instrument 52-110 Audit Committees (“MI 52-110”).

Financial Literacy and Expertise

The members of the Audit Committee have relevant education and experience as follows:

K.L. Hawkins	Mr. Hawkins holds a degree in Business Economics from North Dakota State University.
I.J. Goodreau	Ms. Goodreau holds a Masters of Business Administration and Bachelor of Commerce degree, with emphasis on accounting and finance, from the University of Windsor.
D.W. Kerr	Mr. Kerr is a chartered accountant.
R.W. Osborne	Mr. Osborne is a chartered accountant and is a Fellow of the Institute of Chartered Accountants. He was Chief Financial Officer of Maclean Hunter Limited for three years and BCE Inc. for one year and spent 13 years with a predecessor of Ernst & Young LLP auditing Canadian public companies.
R. Royer	Mr. Royer holds a Master of Commerce, Bachelor of Civil Law and a Master of Accountancy degree from the University of Sherbrooke. Mr. Royer is a chartered accountant and a member of the Quebec Order of Chartered Accountants and the Canadian Institute of Chartered Accountants. Mr. Royer is also a Fellow of the Quebec Order of Chartered Accountants.

The Board of Directors has determined that each member of the Audit Committee is financially literate, and that D.W. Kerr, R.W. Osborne and R. Royer each have accounting or related financial management expertise and are qualified to be an audit committee financial expert as defined by the United States Securities and Exchange Commission (“SEC”).

Charter

The Audit Committee’s charter was amended by the Board of Directors in 2004 to incorporate the requirements of MI 52-110. In January 2005, the charter was further amended by the Board to include the Audit Committee’s responsibility to review the Corporation’s anti-fraud control program and to remove specific responsibility for oversight of the Corporation’s reserves disclosure. This responsibility for the Corporation’s reserves disclosure was transferred to the Reserves Committee appointed by the Board on September 29, 2004. A copy of the Audit Committee’s mandate is attached to this Management Proxy Circular in Appendix 1 and copies of the charters of the Audit Committee and Reserves Committee are posted on the Corporation’s website at www.shell.ca.

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Meetings – 2004

The Audit Committee held nine meetings in 2004 and, among other matters:

• Discussed with management and the external auditors current and emerging accounting principles and practices and significant disclosure matters and received reports from management on major accounting principles proposed for implementation by the Corporation in 2004 and 2005.

• Reviewed the annual and interim financial statements, including Management’s Discussion and Analysis, and press releases containing material financial information prior to approval for publication and filing with the securities regulators.

• Approved the interim financial statements and press releases, including Management’s Discussion and Analysis, for the three months ended March 31, 2004 and the nine months ended September 30, 2004 pursuant to a delegation from the Board of Directors.

• Confirmed with management that there were no unresolved issues or difficulties between management and the external auditors that could affect the financial statements and reviewed with management the overall performance of the external auditors.

• Received six reports from and met with the General Auditor to discuss business control and compliance audits conducted by internal audit, including compliance with the Corporation’s Statement of General Business Principles and Code of Ethics, and internal audit’s mandate, objectives, goals, budget and staffing. The Audit Committee met four times with the General Auditor separate from management and the external auditors.

• Received a report from management on the Corporation’s disclosure controls and procedures and reviewed with management the financial reporting process and internal controls.

• Received six reports from and met with the external auditors to discuss the scope, objectives and responsibilities of the annual audit, the results of the audit, their assessment of the Corporation’s accounting, financial and management controls and procedures and their statement on independence from the Corporation. The external auditors attended all meetings and met five times with the Audit Committee separate from management.

• Reviewed and pre-approved the audit and permitted non-audit services to be provided by the external auditors.

• Reviewed and approved the external auditors’ engagement letter and estimated fees.

• Reviewed the Corporation’s procedures relating to the disclosure of reserves data for its oil and gas and oil sands mining activities, together with the appointment of the Chief Reservoir Engineer and Chief Mining Engineer as the Corporation’s internal qualified reserves evaluators for oil and gas and oil sands mining, respectively, and the procedures for providing information to these evaluators.

• Met with management and the internal qualified reserves evaluators to review the reserves data, the reports of the internal qualified reserves evaluators and the related report of management and the Board.

• Met with the internal qualified reserves evaluators separate from management and confirmed that there were no restrictions that affected their ability to report on reserves data without reservation.

• Established a policy to regulate the hiring of former personnel of the external auditors by the Corporation.

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• Approved the 2003 expenses of the President.

• Reviewed the current and emerging U.S. and Canadian disclosure requirements and the Audit Committee’s rules, procedures and responsibilities.

Meetings – First Quarter of 2005

The Audit Committee held three meetings in the first quarter of 2005 and, among other matters, considered the following:

Financial Disclosure

The Audit Committee reviewed and discussed with management and the external auditors the 2004 Annual Information Form, this Management Proxy Circular, Management’s Discussion and Analysis contained in the 2004 Annual Report and the audited consolidated financial statements for the year ended December 31, 2004. Based on this review and discussion, and the report of the external auditors, the Audit Committee recommended to the Board of Directors the approval of the 2004 Annual Information Form, this Management Proxy Circular, Management’s Discussion and Analysis contained in the 2004 Annual Report and the audited consolidated financial statements for the year ended December 31, 2004, together with the auditors’ report thereon, for filing with the Canadian securities regulators and the Form 40-F for filing with the SEC.

Reappointment of External Auditors

The Audit Committee recommended to the Board of Directors that the shareholders be asked to reappoint PricewaterhouseCoopers LLP as the Corporation’s external auditors for 2005.

Report presented by:

K.L. Hawkins, Chairman

I.J. Goodreau

D.W. Kerr

R.W. Osborne

R. Royer

Directors’ and Officers’ Liability Insurance

Liability insurance in the amount of $75,000,000 per policy year was purchased for the benefit of the directors and officers of the Corporation against liability incurred by them in their capacity as a director or officer of the Corporation or of a subsidiary. There is no lesser limit specified for any individual insured.

In 2004, the approximate amount of the insurance premium paid by the Corporation was $542,350 on an annual basis. A one year policy was purchased that will expire June 30, 2005. The premium is payable without distinction as to directors as a group or officers as a group and the total cost of the insurance is paid by the Corporation.

In respect of wrongful acts for which the Corporation is not permitted by law to indemnify an insured individual, there is no deductible. Where the Corporation is permitted to indemnify the insured, the deductible is $500,000.

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Statement of Corporate Governance Practices

The Toronto Stock Exchange (the “TSX”) has adopted a set of guidelines for effective corporate governance that requires a listed corporation to disclose annually its approach to corporate governance, with specific reference to each guideline. The Canadian Securities Administrators have published proposed National Instrument 58-101 Disclosure of Corporate Governance Practices (the “CSA Proposals”) which are expected to replace the TSX guidelines as the national standard for corporate governance.

A complete description of the Corporation’s system of corporate governance, according to the TSX guidelines and with cross-references to the CSA Proposals, is set out in the “Statement of Corporate Governance Practices” attached as Appendix 2 to this Management Proxy Circular. This disclosure statement has been approved by the Nominating and Governance Committee and by the Board of Directors.

This Management Proxy Circular, including Appendix 2, is posted on the Corporation’s website at www.shell.ca.

Appointment of Auditors

Unless it is specified in a proxy that shares represented thereby be voted against or withheld from voting in respect of the appointment of auditors, shares represented by properly executed proxies in favour of the persons designated in the enclosed form of proxy will be voted for the appointment of PricewaterhouseCoopers LLP as independent auditors of the Corporation to hold office until the next annual meeting of shareholders and to authorize the directors to fix the remuneration of such auditors.

PricewaterhouseCoopers LLP have been the auditors of the Corporation for the past 5 years and were first appointed in 1925.

The percentage of votes required for the approval of the appointment of the auditors and the authorization of directors to fix the remuneration of the auditors is a simple majority of the votes cast in person and by proxy.

For each of 2004 and 2003, the following fees were approved for or paid to PricewaterhouseCoopers LLP:

	Year Ended			Year Ended
	December 31,			December 31,
	2004			2003
Audit Fees	$	804,000		$	830,000
Audit-related Fees	$	331,000	(1)	$	121,000	(2)
Tax Fees	$	265,000	(3)	$	234,000	(3)
All Other Fees		–			–
Total	$	1,400,000		$	1,185,000

Notes:

(1)	Legislative compliance advice, assurance due diligence for a transaction between the Corporation and an affiliate and ISO 14001 re-registration audit.
(2)	Legislative compliance advice and ISO 14001 re-registration audit.
(3)	Expatriate tax services and corporate tax compliance matters.

Representatives of PricewaterhouseCoopers LLP are planning to attend the Meeting and will have the opportunity to make a statement if they so desire and to respond to appropriate questions.

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Subdivision of Common Shares

The Board of Directors has approved the proposed subdivision of the Common Shares of the Corporation on a three for one basis. The purpose of the proposed subdivision is to both increase the number of outstanding Common Shares of the Corporation available for trading and to broaden the market for the Corporation’s listed Common Shares by bringing the market price of such shares within a range believed to be more attractive to investors. The Board of Directors and management of the Corporation believe that an increased number of outstanding Common Shares and a broader market will be beneficial to the shareholders and the Corporation.

The proposed subdivision of the Common Shares will not change the rights of holders of Common Shares. Each Common Share outstanding after the proposed subdivision will be entitled to one vote and will be fully paid and nonassessable. Also, the proposed subdivision of the Common Shares will not change the shareholders’ equity or interest in the Corporation. Three Common Shares immediately after the proposed subdivision will be equal to one Common Share immediately before the subdivision. As of March 10, 2005, 275,142,462 Common Shares were issued and outstanding. After the proposed subdivision, the number of Common Shares authorized will be unlimited of which (as of March 10, 2005) 825,427,386 Common Shares will be issued and outstanding. As a result of the proposed subdivision of the Common Shares, there will be certain consequential amendments to the Corporation’s outstanding Options and to the deferred share unit plans in place for the directors and executive officers of the Corporation.

At the Meeting, the shareholders will be asked to consider and, if deemed advisable, approve a special resolution to authorize management of the Corporation to amend the Articles of the Corporation to subdivide each of the authorized Common Shares, without par value, whether issued or unissued, into three Common Shares without par value in the form attached as Appendix 3 to this Management Proxy Circular, subject to such amendments, variations or additions as may be approved at the Meeting. The special resolution must be passed by a majority of not less than two-thirds of the votes cast by shareholders who vote in person or by proxy in respect of the resolution at the Meeting. The Board of Directors may revoke the special resolution before it is acted upon, without further approval of the shareholders, if such revocation would, in the opinion of the directors, be in the best interests of the Corporation.

If the special resolution is approved by the shareholders, it is the Corporation’s intention to file Articles of Amendment to effect the subdivision of the Common Shares. The subdivision of the Common Shares would not, however, become effective until the issuance of a Certificate of Amendment to the Corporation’s Articles by the Director under the Canada Business Corporations Act. The Articles of Amendment will not be filed until the Corporation is satisfied that appropriate arrangements have been made for the listing and trading of the subdivided Common Shares on the TSX. It is expected that the record date for the subdivision of the Common Shares will be June 23, 2005 and, normally, the trading of the subdivided Common Shares commences on the TSX two business days prior to the record date.

Certificates for additional Common Shares to which each shareholder will be entitled, if the special resolution is passed and if the Certificate of Amendment is obtained, will be mailed to shareholders shortly after the record date. Shareholders should retain their existing Common Share certificates and should not surrender them to the Corporation or to the Corporation’s transfer agent. The share certificates outstanding on the effective date of the subdivision will automatically represent the number of subdivided Common Shares following the subdivision.

Shareholders voting against the special resolution are not entitled to exercise any statutory rights of dissent or similar appraisal remedies that would require the Corporation to repurchase their Common Shares if the special resolution is approved by shareholders and implemented by the Corporation.

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Income Tax Consequences of the Subdivision

The Corporation is advised by its counsel that the proposed subdivision of the Common Shares will not result in a gain or loss to shareholders who hold their shares as capital property for Canadian or United States federal income tax purposes.

Canada

For Canadian income tax purposes, no disposition or acquisition is considered to have occurred with respect to each subdivided share.

For each Common Share owned by a shareholder immediately before the proposed subdivision, the adjusted cost base to a shareholder of three Common Shares immediately after the subdivision will be equivalent to the adjusted cost base of the unsubdivided share. The cost of all shares will be averaged together to determine the adjusted cost base of any particular share disposed of after the subdivision. Also, each shareholder will be treated as having held the new subdivided shares as of the date the old unsubdivided shares were originally acquired.

United States

For United States income tax purposes, the tax bases to a shareholder of each Common Share immediately after the proposed subdivision will be one-third the tax bases of each unsubdivided share owned immediately before the subdivision.

Shareholder Proposal

Attached to this Management Proxy Circular in Appendix 4 is a shareholder proposal which has been submitted for consideration at the Meeting and the response of the Board of Directors of the Corporation to the proposal. Unless it is specified in a proxy that shares represented thereby be voted for or withheld from voting in respect of the shareholder proposal, shares represented by properly executed proxies in favour of the persons designated in the enclosed form of proxy will be voted against the shareholder proposal.

2006 Annual Meeting of Shareholders

Shareholder proposals must be received in the office of the Secretary of the Corporation by December 10, 2005 to be considered for inclusion in the management proxy circular and form of proxy for the 2006 annual meeting of shareholders.

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Availability of Documents

Copies of the following documents are available upon request and without charge from the Corporation’s Secretary:

• 2004 Annual Information Form

• 2004 Annual Report to Shareholders containing the comparative consolidated financial statements for 2004 together with the auditors’ report thereon and Management’s Discussion and Analysis

• Interim financial statements for periods subsequent to December 31, 2004

• 2005 Management Proxy Circular

Financial information is available in the Corporation’s comparative consolidated financial statements and Management’s Discussion and Analysis contained in the 2004 Annual Report. The foregoing documents, together with additional information relating to the Corporation, can be found under the Corporation’s profile on SEDAR at www.sedar.com and on the Corporation’s website at www.shell.ca.

Directors’ Approval

The contents and the sending of this Management Proxy Circular have been approved by the directors of the Corporation.

Dated: March 10, 2005

Simon A. Fish

Secretary

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APPENDIX 1

BOARD AND COMMITTEE MANDATES

BOARD OF DIRECTORS MANDATE

Board Responsibilities

The Canada Business Corporations Act requires directors to manage, or supervise the management of, the business and affairs of the Corporation. The Board carries out this responsibility through a stewardship role. The day to day management is delegated to the officers of the Corporation. In fulfilling this stewardship role the Board has the responsibility to:

• Oversee the development and implementation of the annual strategic, financial and operating plans, including annual targets, and approve the annual Capital and Exploration budget.

• Ensure that management establishes an effective Health, Safety and Environment Management Plan and maintains it in conformity with current standards.

• Oversee the development and implementation by management of a strategic planning process to identify, manage and monitor the opportunities and principal risks of the Corporation’s business and ensure the implementation of appropriate systems to manage these risks.

• Ensure that management implements and maintains appropriate internal controls and management information systems.

• Oversee succession plans and relevant management development plans.

• Ensure that management maintains an effective shareholder communication program that provides for timely communication by the Corporation with its shareholders, including effective means to enable shareholders to communicate with senior management and the Board and conforms to current practices.

• Appoint the President and Chief Executive Officer and other officers of the Corporation.

• Appoint an Audit Committee comprised of independent directors.

• Appoint such other committees as the Board considers advisable to assist in carrying out its responsibilities effectively and to delegate to such committees any of the powers of the Board it is entitled to delegate pursuant to the Canada Business Corporations Act.

• Comply with the Corporation’s by-laws and the statutory and fiduciary obligations which generally exist for directors of publicly traded companies in Canada.

• Comply with and conduct periodic assessments of the Corporation’s Statement of General Business Principles and Code of Ethics and oversee compliance therewith within the Corporation.

• Satisfy itself as to the integrity of the Chief Executive Officer and other executive officers of the Corporation and ensure that senior management creates a culture of integrity throughout the Corporation.

• Establish and maintain a set of governance principles for the Corporation including practices that ensure that the Board functions independently of management.

AUDIT COMMITTEE MANDATE

Financial Reporting and Process Review

The Committee shall deal with the following matters:

• Review changes in accounting principles and practices followed by the Corporation, and discuss accounting and reporting rules and proposals of regulatory bodies with management and the external auditors.

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• Review the annual financial reports (including Management’s Discussion and Analysis) and other documents containing financial information including press releases that is likely to be material and recommend approval to the Board prior to submission to securities commissions as required by any regulatory authority.

• Review the interim financial statements (including Management’s Discussion and Analysis) for each interim period in a financial year prior to public announcement and filing with securities commissions.

• Approve the interim financial statements for the first nine months of a financial year prior to public announcement, filing with securities commissions and delivery to security holders, and for any other interim period in a financial year if a meeting of the Board will not be held prior to public announcement.

• Satisfy itself that there are no unresolved issues between management and the Corporation’s external auditors or other difficulties encountered by the external auditors that could affect the financial statements.

• Include in the Management Proxy Circular each year a copy of the Mandate of the Committee and a report to shareholders on the Committee’s activities in satisfying its responsibilities during the year in compliance with these terms of reference.

Internal Financial, Business and Anti-Fraud Controls

The Committee shall deal with the following matters:

• Review with the internal auditors the objectives and goals, staffing plans and financial budget of the department.

• Review and approve the internal auditors’ mandate, including internal audit’s purpose, authority and responsibility.

• Review with management the quality and depth of staffing and, if appropriate, recommend the appointment or replacement of the General Auditor.

• Meet the General Auditor, either at the request of the General Auditor or on its own initiative, to discuss significant audit findings and management’s response.

• Receive from management an overview of the risks, policies, procedures and controls surrounding the integrity of financial reporting.

• Review the Corporation’s anti-fraud program.

• Review the effectiveness of the overall system of internal controls and the anti-fraud program and the process for identifying and managing principal business risks and provide its view to the Board.

• Review with management and external auditors compliance with the Corporation’s Statement of General Business Principles and Code of Ethics, and review any significant or unusual transactions or questionable payments which have come to their attention.

• Review the Corporation’s procedures for (a) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and (b) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters, and, if appropriate, recommend that an additional or replacement complaints procedure be established.

• Review annually the expenses of the President.

External Auditors

The Committee shall deal with the following matters:

• Meet the external auditors independently of management, either at the request of the external auditors or on its own initiative, to consider matters, both qualitative and quantitative, which the external auditors believe should be brought to the attention of the Board or shareholders.

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• Review and approve the services to be provided by the external auditors, whether audit or non-audit, prior to the commencement of such services.

• Review the annual audit plan with the external auditors.

• Specify the categories of non-audit services that the external auditors are prohibited from providing to the Corporation.

• Review the external auditors’ evaluation of the Corporation’s internal control systems and procedures.

• Review the external auditors’ engagement letter and estimated and final compensation for each approved service.

• On an annual basis, review and discuss with the external auditors all significant relationships the external auditors have with the Corporation to establish independence.

• Require the external auditors to submit a formal written statement delineating all relationships between the external auditors and the Corporation.

• Review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of any of its external auditors.

• Oversee and review the performance of the external auditors and if appropriate recommend the replacement of the external auditors.

• Recommend to the Board the selection of the external auditors, with special considerations for independence and effectiveness, and the compensation of the external auditors.

MANAGEMENT RESOURCES AND COMPENSATION COMMITTEE MANDATE

Responsibilities

The Committee shall act within the scope of its authority and shall also deal with such matters as may be referred to it from time to time by the Board of Directors for consideration. The Committee is authorized by the Board to deal with the following:

• Review and approve the annual targets and objectives of the President and CEO and evaluate his or her performance against such targets and objectives.

• Review and approve the annual compensation of the President and CEO, in consultation with the Chairman of the meetings of the Board.

• Based on the recommendation of the President and CEO, review and approve the annual compensation for senior management. “Senior management” means officers of the Corporation and other senior management as designated by the Board from time to time.

• Approve any changes to pension and other benefit plans that would significantly change the plan features or would have a significant cost to the Corporation, and approve any new pension or benefit plans.

• Review stock option plans and other equity related long term incentive plans to be administered by the Committee, or such other committee assigned the responsibility to administer the plans.

• Approve termination settlements for senior management, including any retirement income supplementary to existing pension plans.

• Review the senior management succession and development plans and report to the Board at least annually on such plans.

• Recommend candidates for appointment as officers of the Corporation to the Board.

• Review and approve any employment contracts and any other individual financial arrangements for senior management.

• Recommend to the Board for approval the Report on Compensation included in the Annual Management Proxy Circular.

• Review and recommend to the Board for approval any changes to the “Shell Canada Limited Deferred Share Unit Plan for Executive Officers”.

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NOMINATING AND GOVERNANCE COMMITTEE MANDATE

Responsibilities

The Committee shall act within the scope of its authority and shall also deal with such matters as may be referred to it from time to time by the Board for consideration. The Committee is authorized by the Board to deal with the following:

• Review and determine the criteria for identifying potential nominees to the Board of Directors.

• Seek guidance from the President and Chief Executive Officer in identifying and assessing potential candidates to be nominated for election to the Board of Directors.

• Review and recommend to the Board of Directors criteria related to the tenure of Directors.

• Annually review the performance of the Board of Directors, the committees of the Board and individual directors, and the relationship between the Board and management.

• Annually review the membership of the committees of the Board and make recommendations to the Board on appointments to the committees, including the appointment of a Chairman for each committee.

• Periodically review and make recommendations to the Board on:

(a)	the Board mandate;
(b)	the mandates and responsibilities of the committees of the Board; and
(c)	the position descriptions for:

• the Chief Executive Officer;

• the Chairperson of the Board;

• the Chairperson of committees of the Board; and

• the directors.

• Regularly review and approve changes to the remuneration to be paid to the Directors of the Corporation and any special remuneration for members of Board Committees or the Chairman of the meetings of the Board.

• Review and recommend to the Board for approval any changes to the “Director Share Compensation Plan” and the “Shell Canada Limited Deferred Share Unit Plan for Non-employee Directors”.

• Review and recommend to the Board for approval a set of corporate governance principles applicable to the Corporation.

• Review the orientation and education program for new members of the Board and committees of the Board and oversee the continued development of existing members of the Board.

• Regularly review the corporate governance practices of the Corporation and, if appropriate, recommend changes to the Board.

• Review and recommend to the Board for approval the corporate governance disclosure statements required by the Toronto Stock Exchange or securities authorities for inclusion in the Annual Information Form and Management Proxy Circular.

• Review and make recommendations to the Board on any other matters related to the governance of the Corporation that the Committee considers appropriate.

RESERVES COMMITTEE MANDATE

Responsibilities

The Committee shall have authority and responsibility for the following:

• Annual review and assessment of the ongoing adequacy of these terms of reference, reporting any proposed changes to the Board for approval.

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• Consultation with the Corporation’s senior reserves evaluation personnel, considering, reviewing and reporting to the Board in respect of the following:

(a)	appointment of, or any changes to, qualified reserves evaluator(s) or auditor(s); and
(b)	determination of reasons for any proposed change in appointment of the qualified reserves evaluator(s) or auditor(s) and, in particular, in the event there is a change of qualified reserves evaluator(s) or auditor(s), whether there have been any disputes between the qualified reserves evaluator(s) or auditor(s) and the Corporation’s management.

• Consideration and review, with reasonable frequency, of the Corporation’s internal procedures relating to the disclosure of oil, gas and mineable bitumen reserves data, with special attention given to the following:

(a)	the adequacy of such procedures for fulfillment of applicable regulatory and disclosure requirements and restrictions;
(b)	the Corporation’s procedures for providing information to the qualified reserves evaluator(s) or auditor(s) who report on reserves data, and whether any restrictions affect the ability of the qualified reserves evaluator(s) or auditor(s) to report without reservation; and
(c)	the scope of the annual evaluation of the reserves by the qualified reserves evaluator(s) or auditor(s) having regard to applicable securities legislation, regulations and related requirements.

• Annual review, assessment, and approval of the fees for any independent reserves evaluator(s) or auditor(s).

• Review all reserve audit reports prepared by the Corporation’s reserves evaluation personnel or any independent reserves evaluator(s) or auditor(s) for the Corporation.

• Meeting with the Corporation’s management and each of the chief qualified reserves evaluators, prior to approval and filing of reserves data and the report of the qualified reserves evaluator(s) or auditor(s) thereon, to review the Corporation’s annual reserves data, including the following:

(a)	review the scope of work of the qualified reserves evaluator(s) or auditor(s);
(b)	review the reserves estimates of the qualified reserves evaluator(s) or auditor(s); and
(c)	determine whether any restrictions affected the ability of the qualified reserves evaluator(s) or auditor(s) to report on the Corporation’s reserves data without reservation.

• Coordination of meetings with the Corporation’s management, qualified reserves evaluator(s) and auditor(s), as may be required, to address matters of mutual concern in respect of the Corporation’s evaluation of oil, gas and mineable bitumen reserves.

• Receive timely reports from management on the status of the Corporation’s response to matters of concern raised in reports prepared by the Corporation’s reserves evaluation personnel or any independent reserves evaluator(s) or auditor(s) for the Corporation.

• Meeting with the Corporation’s management, prior to public disclosure of the Corporation’s annual reserves data, to review and provide recommendations regarding approval of the content and filing of information as required under applicable securities legislation, regulations and related requirements, including the following:

(a)	the content and filing of the statement of reserves data and related information;
(b)	the filing of the report of the qualified reserves evaluator(s) or auditor(s); and
(c)	the content and filing of the related report of management and the Board.

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APPENDIX 2

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Shell Canada Limited (“Shell Canada” or the “Corporation”) is committed to maintaining high standards of corporate governance and continually assesses its governance practices against evolving policies, practices and requirements. The 2004 Annual Report contains an overview of the Corporation’s corporate governance practices on pages 82 and 83.

The table below sets out a comparison of Shell Canada’s corporate governance practices with the Toronto Stock Exchange (“TSX”) guidelines for effective corporate governance set out in section 474 of the TSX Company Manual. Cross-reference is made to the disclosure requirements of the Canadian Securities Administrators’ proposed National Instrument 58-101 Disclosure of Corporate Governance Practices (the “CSA Proposals”).

This Statement of Corporate Governance Practices has been approved by the Nominating and Governance Committee and the Board of Directors. The Board of Directors has determined that Shell Canada’s corporate governance practices are aligned with both the TSX guidelines and the CSA Proposals.

TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
1. The board should explicitly assume responsibility for stewardship of the corporation and, as part of the overall stewardship responsibility, the board should assume responsibility for the following matters: (The CSA Proposals require disclosure of the board’s written mandate.)	ü	The mandate of the Board is to supervise the management of the business and affairs of the Corporation. The Board’s authority is exercised in accordance with: •   the Canada Business Corporations Act; •   the Corporation’s articles of incorporation and by-laws; •   the Corporation’s Statement of General Business Principles and Code of Ethics; •   the charters of the Board and the Board committees; and •   other applicable laws and regulations including those imposed on the Corporation by Canadian Securities Administrators (“CSA”), the TSX (on which the Corporation’s Common Shares are listed) and the U.S. Securities and Exchange Commission (“SEC”). The Board approves all material decisions that affect the Corporation and its subsidiaries before they are implemented. The Board delegates to management the authority and responsibility for the day-to-day affairs of the Corporation and reviews management’s performance. The Board expects management to manage the Corporation in a manner that enhances shareholder value, is consistent with the highest level of integrity and within the law.
		Copies of the Corporation’s Statement of General Business Principles, Code of Ethics and the charters of the Board and its committees can be found on its website at www.shell.ca. Printed versions of these documents are also available upon request to the Corporation’s Secretary.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
a.  adoption of a strategic planning process;	ü	The Board oversees the Corporation’s strategic direction and is involved in the Corporation’s strategic planning process. During the course of the year the Board will review with management the individual business plans for each of the business units. The Board is responsible for reviewing and supporting the overall five-year strategic plan, including risks and opportunities. Throughout the year, the Board reviews business, segment and project-level strategies, as appropriate. At its last meeting of the year, the Board approves the capital and operating budget for the following year. The Board reviews the Corporation’s performance against the strategic plan at least quarterly. Management must seek the Board’s approval for any transaction that would have a significant impact on the strategic plan.
b. identification of the principal risks of the corporation’s business and ensuring implementation of appropriate systems to manage those risks; (The CSA Proposals require disclosure on the subject of ethical business conduct, the adoption of a code of business conduct and compliance monitoring.)	ü	The Board is responsible for identifying the principal risks of the Corporation and ensuring that risk management systems are implemented. The systems for identifying and managing these risks include: •   a risk based control assessment process to identify significant risks that the Board reviews annually; •   risk assessments for all new projects on cost, schedule, technology, economics and the sustainable development aspects of the project; •   peer reviews on major projects; •   reviews of capital expenditures, economic premises, earnings projections and sensitivities, and the financing capabilities of the Corporation in the strategic planning process; •   a management system for Health, Safety and Environment (“HSE”);
		•   ISO 14001 registration of Environmental Management for all key operating facilities;
		•   audits on HSE and asset integrity;
		•   an “Assurance Committee” comprising the President and CEO and senior management that oversees a range of appraisal mechanisms including business control audits, HSE audits, asset integrity reviews, value assurance reviews and self-assessments;
		•   financial controls, business processes and management information systems monitored by internal audit, the external auditor and the Audit Committee;
		•   quarterly reports to the Board on HSE;
		•   reports to the Board on interest rate, currency risk and other risk management activities; and

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
		•   annual assurance letters on HSE, the Statement of General Business Principles and Code of Ethics and a wide range of business procedures, policies and practices provided to the Board by the President and CEO.
		The Audit Committee meets regularly to review reports and discuss significant risk areas with the internal and external auditors. The Board, through the Audit Committee, ensures that the Corporation adopts appropriate risk management policies.
		The Corporation has adopted a Statement of General Business Principles and a Code of Ethics for its directors, officers and employees which includes commentary and direction in the areas of business integrity and conflicts of interest. Copies of the Corporation’s Statement of General Business Principles, Code of Ethics and the charters of the Board and its committees can be found on its website at www.shell.ca. Printed versions of these documents are also available upon request to the Corporation’s Secretary.
		In the ordinary course of business, the Corporation and its subsidiaries enter into transactions with which a director may have a relationship. If any such transactions are brought before the Board for discussion or approval, the director declares a conflict of interest and withdraws from any discussion or vote on the transaction.
c.  succession planning, including appointing, training and monitoring senior management;	ü	The Board is responsible for appointing the President and CEO and senior management. The Board, through the Management Resources and Compensation Committee: •   approves the President and CEO’s annual objectives and compensation and terms of employment;
		•   assesses at least annually the performance of the President and CEO;
		•   determines compensation and terms of employment for senior executives; and
		•   approves pension and benefit plans of the Corporation.
		The Management Resources and Compensation Committee, in consultation with the President and CEO, recommends candidates to the Board for appointment as officers. This committee ensures that processes are in place to recruit senior managers with the highest standards of integrity and competence, and to train, develop and retain them. It also oversees the implementation of succession and management development plans and reports to the Board at least annually. The Board supports management’s commitment to training and developing all employees.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
d. communications policy for the corporation;	ü	The Board has adopted a corporate disclosure policy based on the CSA’s National Policy 51-201 Disclosure Standards and the TSX’s Policy Statement on Timely Disclosure and Electronic Communications Disclosure Guidelines. The policy provides direction on the accurate and timely disclosure of material information, confidentiality, equal dissemination of information to investors and analysts, electronic communications and employee trading. The policy is administered by a committee of senior management and is reviewed at least annually. A copy of the Corporation’s policy can be found on its website at www.shell.ca.
		The Board approves all major communications by the Corporation, including annual and quarterly financial reports to shareholders and reviews press releases involving financial information. The Corporation communicates with its stakeholders through a number of channels including its website. Shareholder communications are available in English and French. Inquiries from investors, media or the public are responded to by Investor Relations, Public Affairs, the Corporation’s Secretary or the appropriate members of senior management. The Corporation has a toll free number for customers and public inquiries.
e.  integrity of internal control and management information systems.	ü	The Board, through its Audit Committee, examines the effectiveness of the Corporation’s internal control processes and management information systems. The Committee meets at least quarterly to receive reports and review the integrity of the systems with management and, independently of management, with the internal and external auditors. The internal auditor submits quarterly reports to the Audit Committee on the quality of the Corporation’s internal control processes and management information systems. The annual assurance letter to the Board from the President and CEO and the CFO includes a statement on the integrity of the internal control and management systems. The President and CEO and the CFO provide certificates prescribed by the Sarbanes-Oxley Act of 2002 and the CSA.
2. A majority of directors should be “unrelated”.	ü	Of the ten directors standing for election in 2005, only C. Mather, the President and CEO of the Corporation, is an inside director. All other directors and nominee directors are “unrelated directors” (as defined below). The Corporation has a significant shareholder and one unrelated director and one unrelated nominee director are related to the significant shareholder.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
3. The board has responsibility for applying the definition of “unrelated director” to the circumstances of each individual director and for disclosing annually whether the board has a majority of unrelated directors (the CSA Proposals require disclosure of the number of “independent directors”) and whether the board is constituted with the appropriate number of directors who are not related to either the corporation or the significant shareholder.	ü	An “unrelated director” is a director who is independent of management and is free from any interest and any business or other relationship which could materially interfere with his or her ability to act with a view to the best interests of the Corporation, other than interests and relationships arising from shareholding. An “outside director” is a director who is not a member of management. An “independent director” is a director who has no material relationship with the Corporation. A “material” relationship is one which could, in the view of the issuer’s Board, reasonably interfere with the exercise of a member’s independent judgement. The majority of directors standing for election in 2005 are unrelated to, and independent of, the Corporation.

Nominees	Unrelated	Outside	Independent
C. Mather	X	X	X
D.H. Burney	ü	ü	ü
I.J. Goodreau	ü	ü	ü
K.L. Hawkins	ü	ü	ü
D.W. Kerr	ü	ü	ü
W.A. Loader	ü	ü	X
R.W. Osborne	ü	ü	ü
R.J. Routs	ü	ü	X
R. Royer	ü	ü	ü
N.C. Southern	ü	ü	ü
The Board analyzes all the relationships of the directors and the nominee directors with the Corporation and its subsidiaries.
C. Mather, W.A. Loader and R.J. Routs are not considered independent of the Corporation.
C. Mather is a related director and not independent because of his position as President and CEO of the Corporation. None of the other directors work in the day-to-day operations of the Corporation, are party to any material contracts with the Corporation, or receive any fees from the Corporation other than as directors.
W.A. Loader is Director, Strategic Planning, Sustainable Development and External Affairs of Shell International Limited. Mr. Loader also serves on the board of other Royal Dutch/ Shell Group companies.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
		R.J. Routs is Managing Director of Royal Dutch Petroleum Company and a Group Managing Director of the Royal Dutch/ Shell Group. Royal Dutch Petroleum Company is considered a significant shareholder of the Corporation and, along with The “Shell” Transport and Trading Company, p.l.c. and Shell Petroleum N.V., holds approximately 78 per cent of the equity and voting rights of the Corporation.
		The Board believes the following relationships are not “material” (as that term is defined by the SEC) and do not affect the unrelated, outside or independent director status of any of the noted directors. None of these unrelated, outside or independent directors have received remuneration from the Corporation, other than directors’ fees.
		I.J. Goodreau is a director of Terasen Inc. An affiliate of Terasen Inc. owns the pipeline that transports bitumen and diluent for the Athabasca Oil Sands Project (“AOSP”) between the Muskeg River Mine and the Scotford Upgrader.
		K.L. Hawkins is an officer and director of Cargill Limited. The Corporation supplies sulphur to companies in which Cargill Limited or an affiliate thereof has an ownership interest. Mr. Hawkins is also a director of TransCanada Corporation and TransCanada PipeLines Limited. The Corporation has an agreement with an affiliate of TransCanada PipeLines Limited for the supply of electric power in connection with an Alberta power purchase arrangement. Mr. Hawkins is also a director of Nova Chemicals Corporation. The Corporation supplies benzene to an affiliate of Nova Chemicals Corporation.
		D.W. Kerr and R.W. Osborne are directors of Sun Life Financial Inc. In 2002, the Corporation selected Sun Life Financial Inc. to provide administrative services together with a selection of investment funds for the defined contribution segment of the Corporation’s pension plan. The selection was based on a competitive bid process conducted by the Corporation’s benefit administration group and the trustees of the pension plan.
		N.C. Southern is an officer and director of ATCO Companies. ATCO Companies own a natural gas pipeline that provides natural gas and two cogeneration plants that provide electricity to the AOSP. Ms. Southern is also a director of the Bank of Montreal. During 2004, the Corporation and its subsidiaries obtained services from a number of banking institutions including the Bank of Montreal.
		Further information about each director, including other directorships, can be found on pages 7 through 11 of the 2005 Management Proxy Circular.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
		Except for C. Mather, W.A. Loader and R.J. Routs, all of the other seven directors and nominee directors are unrelated to and independent of both the Corporation and the significant shareholder. The Board believes this is an appropriate number to fairly reflect the minority shareholder investment in the Corporation. The significant shareholder holds approximately 78 per cent of the equity and voting rights of the Corporation.
		The independent directors meet without management at each Board meeting. In 2004 there were eight meetings of the Board. The directors’ attendance record at Board meetings during 2004 is set out in the table appearing at the end of this appendix.
	ü	Director	Reporting Issuer
(The CSA Proposals
require disclosure of any		D.H. Burney	Quebecor World Inc.
directorships held by		I.J. Goodreau	Terasen Inc.
the directors in		K.L. Hawkins	TransCanada PipeLines Limited, TransCanada
other reporting issuers.)			Corporation, Hudson’s Bay Company, Nova Chemicals Corporation
		D.W. Kerr	Noranda Inc., Brascan Corporation, Sun Life Financial Inc.
		W.A. Loader	Alliance Unichem plc
		R.W. Osborne	St. Lawrence Cement Group Inc., RioCan Real Estate Investment Trust, Sun Life Financial Inc., Torstar Corporation, Four Seasons Hotels Inc.
		R. Royer	Domtar Inc., Power Financial Corporation
		N.C. Southern	ATCO Ltd., Canadian Utilities Limited, Akita Drilling Ltd., Bank of Montreal

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
4. The board should appoint a committee of directors composed exclusively of outside directors, a majority of whom are unrelated directors, with responsibility for proposing new nominees to the board and for assessing directors on an ongoing basis.	ü	The Nominating and Governance Committee is responsible for determining the selection criteria for new nominees and for assisting the President and CEO in proposing new nominees to the Board. All of its members are outside and unrelated directors. This committee is also responsible for the ongoing assessment of directors. New nominees must have a track record in general business management, expertise in an area of strategic interest to the Corporation, the ability to devote the time required and a willingness to serve. Other considerations include diversity, age, residency, other directorships, financial literacy and expertise and the absence of material conflicts of interest. The committee maintains a list of director candidates and reviews the list annually. Directors are elected by the shareholders at each annual meeting to serve for a term expiring on the date of the following annual meeting.
5. The board should implement a process, to be carried out by an appropriate committee, for assessing the effectiveness of the board, its committees and the contribution of individual directors. (The CSA Proposals contain similar requirements.)	ü	The Nominating and Governance Committee’s mandate includes responsibility for evaluating the effectiveness of the Board, its committees and the contribution of individual directors. This committee: •   annually reviews the performance of the Board and its committees; •   annually reviews membership of the committees and makes recommendations to the Board on appointments to the committees; •   reviews and makes recommendations to the Board on the mandates of the committees of the Board; •   surveys all directors to assist in the assessment of the performance of the Board, its committees and individual directors, and to monitor the relationship between management and the Board; and
		•   recommends changes to improve the effectiveness of the Board in light of the survey feedback.

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TSX guidelines with	Does	Shell Canada’s corporate governance practices
cross-references to	Shell
the CSA Proposals	Canada
	meet the
	guidelines?
6. The corporation should provide an orientation and education program for new directors. (The CSA Proposals require disclosure of the measures the board takes to orient new directors, and to continue the education of existing directors, regarding the role of the board, its committees and its directors and the nature and operation of the corporation’s business.)	ü	New Board members receive at least a two-day orientation program that includes a tour of some of the Corporation’s major operating facilities. Specific topics of interest are presented in more detail, upon request. All new directors receive a Board manual containing the charters of the Board and its committees, and other relevant corporate and business information. The Chairmen of the committees of the Board provide regular reports to the Board on activities completed by each committee. Senior management makes regular presentations to the Board on the main areas of the Corporation’s business.
7. The board should examine its size and undertake to establish a board size which facilitates effective decision making.	ü	The Board, through the Nominating and Governance Committee, reviews the composition and size of the Board once a year. The current size of the Board is ten directors. The Board believes this is an effective size to allow a diversity of business experience for the size of the Corporation and the range and complexity of its businesses as an integrated oil and gas corporation, while still achieving efficient and effective decision making. This number of directors permits the Board to operate in a prudent and efficient manner.
8. The board of directors should review the adequacy and form of compensation of directors in light of the risks and responsibilities involved in being a director.	ü	The Nominating and Governance Committee reviews the adequacy and form of directors’ compensation on an annual basis. In making its recommendations on directors’ compensation, the committee takes into account the time commitment, risks and responsibilities of directors as well as the types of compensation and the amounts paid to directors of comparable publicly traded Canadian companies. All independent directors must elect, on an annual basis, to participate in either the Director Share Compensation Plan (the “DSC Plan”) or the Non-Employee Directors’ Deferred Share Unit Plan (the “DSU Plan”).

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TSX guidelines with		Does	Shell Canada’s corporate governance practices
cross-references to		Shell
the CSA Proposals		Canada
		meet the
		guidelines?
			Under the DSC Plan, each participating director receives 50 per cent of the fees payable to him or her for serving on the Board (excluding committee fees) in the form of Common Shares. A participating director may elect to receive any additional percentage of Board fees and any percentage of committee fees in the form of Common Shares. The Common Shares are purchased quarterly.
			Under the DSU Plan, each participating director receives 50 per cent of Board fees (excluding committee fees) in the form of Deferred Share Units (“DSUs”). A participating director may elect to receive any additional percentage of the Board fees and any percentage of committee fees in the form of DSUs. These fees are converted to DSUs quarterly and have a value equal to the market price of the Corporation’s Common Shares at the end of such quarter.
			All independent directors are also required to hold, after five years of service on the Board, a minimum number of Common Shares or DSUs equivalent in value to three years of Board retainer fees. The Committee last approved an increase in directors’ fees effective January 1, 2005. See pages 27 and 28 of the 2005 Management Proxy Circular for information about the compensation that is received by directors.
9. Committees of the board should generally be composed of outside directors, a majority of whom are unrelated.		ü	The Board has appointed four committees: •   the Audit Committee; •   the Management Resources and Compensation Committee; •   the Nominating and Governance Committee; and •   the Reserves Committee.
	(The CSA Proposals require disclosure of whether or not the board has a nominating committee and a compensation committee comprised entirely of independent directors and a description of the responsibilities and powers of the committees.)		All members of the committees of the Board are outside, unrelated and independent directors. The directors’ attendance record at committee meetings during 2004 is set out in the table appearing at the end of this appendix. A copy of each of the committee mandates can be found in Appendix 1 to the 2005 Management Proxy Circular and on the Corporation’s website at www.shell.ca. Audit Committee This committee has five members: Chair: K.L. Hawkins Other Members: I.J. Goodreau, D.W. Kerr, R.W. Osborne and R. Royer
			This committee met nine times in 2004.

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TSX guidelines with		Does	Shell Canada’s corporate governance practices
cross-references to		Shell
the CSA Proposals		Canada
		meet the
		guidelines?
			Management Resources and Compensation Committee
			This committee has five members: Chair: R.W. Osborne Other Members: D.H. Burney, I.J. Goodreau, R. Royer and N.C. Southern
			This committee held seven meetings in 2004.
			Nominating and Governance Committee
			This committee has four members: Chair: D.H. Burney Other Members: K.L. Hawkins, D.W. Kerr and N.C. Southern This committee met four times in 2004.
			Reserves Committee This committee has four members: Chair: D.W. Kerr Other Members: D.H. Burney, K.L. Hawkins and R.W. Osborne This committee was appointed in September, 2004 and met once before the end of the year. With its appointment, this committee assumed oversight responsibility for the Corporation’s reserves disclosure from the Audit Committee.
10. The board should assume responsibility for, or assign to a committee of directors responsibility for, developing the approach to corporate governance issues.		ü	The Nominating and Governance Committee is responsible for reviewing the overall governance principles of the Corporation, recommending any changes to these principles and monitoring their disclosure. This committee monitors best practices among major Canadian companies to ensure the Corporation continues to carry out high standards of corporate governance.
	This committee would, among other things, be responsible for the response to the TSX guidelines.	ü	This committee is responsible for the statement of corporate governance practices included in the Corporation’s 2005 Management Proxy Circular.

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TSX guidelines with		Does	Shell Canada’s corporate governance practices
cross-references to		Shell
the CSA Proposals		Canada
		meet the
		guidelines?
11. The board of directors, together with the CEO, should develop position descriptions for the board (the CSA Proposals also require disclosure of written position descriptions for the chair of the board, the chair of each board committee) and the CEO.		ü	The mandate of the Board of Directors of the Corporation is to assume responsibility for the stewardship of the Corporation. All of the key elements recommended by the TSX guidelines and the CSA Proposals are included in the Board’s mandate. The Board monitors and supervises the business and affairs of the Corporation with a focus on what is in the best interests of the Corporation, and consistent with enhancing shareholder value. The Board has delegated authority (including financial) to the President and CEO, subject to specified limitations. Any action in excess of these limitations must be submitted to the Board for its approval. Any responsibility that has not been delegated to the President and CEO, or to a committee of the Board, remains with the Board.
			The Board expects management to:
			•   review the Corporation’s strategies and their implementation in all key areas of the Corporation’s activities;
			•   carry out a comprehensive budgeting process and monitor the Corporation’s financial performance against the budget; and
			•   identify opportunities and risks affecting the Corporation’s business and find ways of dealing with them.
			There is a written position description for the Chairman of the meetings of the Board, the Lead Director, the Chair of each Board committee and the President and CEO. Copies of these position descriptions can be found on the Corporation’s website at www.shell.ca.
	The board should approve or develop the corporate objectives which the CEO is responsible for meeting and assess the CEO against these objectives.	ü	The Management Resources and Compensation Committee has the mandate to determine the terms of employment and the compensation of the President and CEO, to approve annual corporate objectives for the President and CEO and to assess his or her performance against those objectives.

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TSX guidelines with		Does	Shell Canada’s corporate governance practices
cross-references to		Shell
the CSA Proposals		Canada
		meet the
		guidelines?
12. The board should implement structures and procedures to ensure that it can function independently of management. An appropriate structure would be to (i) appoint a chair of the board who is not a member of management, or (ii) assign this responsibility to an outside director (the CSA Proposals require disclosure of whether or not the chair of the board is an independent director).		ü	An unrelated director acts as the Chairman of the meetings of the Board. The Chairman of the meetings of the Board is related to the significant shareholder. An unrelated, outside and independent director acts as Lead Director. There is a written position description for the Chairman of the meetings of the Board and the Lead Director. Copies of these position descriptions can be found on the Corporation’s website at www.shell.ca.
	The board should meet on a regular basis without management present (the CSA Proposals contain similar requirements).	ü	The directors meet without management at each Board meeting. The President and CEO is not present during those discussions.
	The board should assign responsibility for administering the board’s relationship with management to a committee of the board.	ü	The Nominating and Governance Committee is responsible for administering the Board’s relationship with management.
13. The Audit Committee should be composed of unrelated directors.		ü	There are five members of the Audit Committee: K.L. Hawkins, I.J. Goodreau, D.W. Kerr, R.W. Osborne and R. Royer. They are all outside, unrelated and independent directors.

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TSX guidelines with		Does	Shell Canada’s corporate governance practices
cross-references to		Shell
the CSA Proposals		Canada
		meet the
		guidelines?
	The board should adopt a charter for the Audit Committee which sets out roles and responsibilities of the Audit Committee which should be specifically defined so as to provide appropriate guidance to Audit Committee members as to their duties.	ü	The Committee’s responsibilities are set out in its charter. The Committee’s mandate can be found in Appendix 1 to the 2005 Management Proxy Circular and on the Corporation’s website at www.shell.ca.
	The Audit Committee should have direct communication channels with the internal and the external auditors.	ü	The Corporation’s internal and external auditors have a direct line of communication with the committee at all times. The internal and external auditors meet with the committee without management present at least quarterly. Management gives the committee a report assessing the adequacy and effectiveness of the Corporation’s disclosure controls and systems of internal control. The committee pre-approves all audit and non-audit work performed by the external auditors.
	Members of the Audit Committee should be financially literate and one member should have accounting or financial expertise.	ü ü	All members of the Audit Committee have the ability to read and understand a balance sheet, an income statement and a cashflow statement. Three of the current members have accounting or related financial expertise – D.W. Kerr, R.W. Osborne and R. Royer are chartered accountants. Further information regarding the relevant education and experience of each member of the Audit Committee can be found on page 29 of the 2005 Management Proxy Circular.
14. The board should implement a system to enable an individual director to engage an outside advisor, at the corporation’s expense in appropriate circumstances. The engagement of the outside advisor should be subject to the approval of an appropriate committee of the board.		ü	Directors may hire outside advisers at the Corporation’s expense, subject to the approval of the Nominating and Governance Committee. Each committee is authorized to retain outside advisors.

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Committee Memberships and Record of Attendance by Directors

For the 12 Month Period ended December 31, 2004

Director	Committee Memberships	Board Meetings		Committee Meetings
		Attended		Attended
Derek H. Burney	MRCC, N&G (Chair), Reserves		8 of 8		12 of 12
Linda Z. Cook(1)			6 of 6
Ida J. Goodreau	Audit, MRCC		7 of 8		16 of 16
Kerry L. Hawkins	Audit (Chair), N&G, Reserves		8 of 8		13 of 14
David W. Kerr	Audit, N&G, Reserves (Chair)		8 of 8		14 of 14
W. Adrian Loader			6 of 8
Clive Mather(2)			2 of 2
John D. McNeil(3)	Audit, MRCC (Chair)		4 of 4		6 of 6
Ronald W. Osborne	Audit, MRCC (Chair), Reserves		8 of 8		15 of 17
Raymond Royer	Audit, MRCC		6 of 8		14 of 16
Nancy C. Southern	MRCC, N&G		6 of 8		5 of 11
Jeroen J. van der Veer			7 of 8

Summary of Meetings Held:

Board – 8

Audit Committee – 9

Management Resources and Compensation Committee (“MRCC”) – 7

Nominating and Governance Committee (“N&G”) – 4

Reserves Committee – 1

Notes:

(1)	Resigned as a director and as President and CEO effective July 31, 2004. Six Board meetings were held in 2004 prior to Ms. Cook’s departure.
(2)	Appointed as President and CEO effective August 1, 2004. Two Board meetings were held in 2004 following Mr. Mather’s appointment.
(3)	Retired as a director on April 30, 2004. Four Board meetings were held in 2004 prior to Mr. McNeil’s retirement.
(4)	The Board of Directors does not have an Executive Committee.

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APPENDIX 3

SPECIAL RESOLUTION OF THE SHAREHOLDERS OF SHELL CANADA LIMITED

RESOLVED that:

1.	The Corporation is hereby authorized to amend Item 3 of the Restated Articles of Incorporation of the Corporation to subdivide each authorized Common Share without par value, whether issued or unissued, into three (3) Common Shares without par value, so that after giving effect to the subdivision, the authorized capital of the Corporation shall consist of an unlimited number of Common Shares without par value, an unlimited number of 4% Cumulative Redeemable Preference Shares and an unlimited number of Preferred Shares without par value issuable in series.
2.	The proper officers of the Corporation are hereby authorized to do all things and execute all documents necessary or desirable to carry out the foregoing, including the preparation, execution and filing of Articles of Amendment with the Director under the Canada Business Corporations Act and making application for a Certificate of Amendment in respect thereof.
3.	The directors of the Corporation are hereby authorized to revoke this special resolution before it is acted upon, without further approval of the shareholders, if such revocation would, in the opinion of the directors, be in the best interests of the Corporation.

This special resolution must be passed by a majority of not less than two-thirds of the votes cast by shareholders who vote in person or by proxy in respect of the resolution at the Meeting.

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APPENDIX 4

SHAREHOLDER PROPOSAL

A shareholder proposal has been submitted on behalf of the Carpenters’ Local 27 Pension Trust Fund for consideration at the Annual and Special Meeting of Shareholders.

The identified representative is Mr. Daniel McCarthy, UBCJA, 2589 Calabogie Road, RR #1, Burnstown, Ontario K0J 1G0. The proposal and supporting statement are set out verbatim below.

Supplemental Executive Retirement Plan Disclosure Policy Proposal

Resolved: The shareholders of Shell Canada Limited (“Company”) request that the Board of Directors establish a Supplemental Executive Retirement Plan Disclosure Policy (“SERP Disclosure Policy”) designed to provide shareholders and investors detailed information concerning supplemental pension programs maintained for Company executives. In order to provide the full range of information to allow shareholders and investors to evaluate the appropriateness of the supplemental plan, the SERP Disclosure Policy should provide for the proxy circular disclosure of the following key aspects of the plan: A statement as to the purpose of the plan; a clear description of the number and type of executives participating in the plan; benefit calculation formula utilized to determine benefit levels; whether past service credits or accelerated service benefits are provided; the funding mechanism for the plan; the estimated corporate liabilities associated with the plan; the estimated annual benefits payable to the plan’s top five executives upon their retirement; and a tabular presentation of benefit schedule based on years of service and earnings levels.

Supporting Statement: In addition to the generous compensation and perquisites our Company provides the executive officers, it also maintains a supplemental executive retirement plan (SERP). Our Company’s proxy circular provides very little information concerning the SERP. The Globe and Mail recently (Nov. 3, 2003) published an article entitled “Firms Quietly Boosting Executive Compensation” in which it reported:

Canadian companies are quietly padding executive pension plans with millions of dollars of future obligations, a practice one expert describes as the ‘new stealth weapon’ in boosting pay. Critics say pension plan adjustments can be a low-profile way to enhance compensation for executives.

That’s because compensation costs must be disclosed annually for top executives in a company’s shareholder proxy circular, but it is difficult for shareholders to calculate the value of any changes made to a CEO’s pension plan.

The full level of compensation received by the Company’s executive officers, including the full range of their pension benefits, should be clearly described to shareholders so that they can assess the appropriateness of these benefits. The levels of supplemental pension benefits provided senior executives and the related liabilities to the Company are basic disclosure items that should be clearly presented on an annual basis to shareholders. We urge your support for this proposal calling on the Board to provide clear and full information regarding the Company’s supplemental pension plan for Company executives.

The Board of Directors recommends that shareholders vote against the proposal for the following reasons:

1)	The Corporation does not have a separate Supplemental Executive Retirement Plan. The pension benefit entitlement for executives is determined on the same basis as for all other employees.
2)	Disclosure provided in the Corporation’s 2005 Management Proxy Circular and in Note 9 to the comparative consolidated financial statements for 2004 contained in the 2004 Annual Report includes

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most of the items raised in the proposal, including clear descriptions of plan membership, benefit calculation formulas, plan funding and corporate liabilities. A tabular presentation of the benefit schedule is also provided.

3) The Corporation complies with the requirements for executive compensation disclosure as contained in Form 51-102F6 – Statement of Executive Compensation of National Instrument 51-102 Continuous Disclosure Obligations.

Accordingly, the information previously disclosed by the Corporation will substantially meet the items raised in the proposal.

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FOR INFORMATION:
Corporate Secretary’s Department
Shell Canada Limited
Shell Centre
400 – 4th Avenue S.W.
Calgary, Alberta T2P 0J4
www.shell.ca

SHELL CANADA LIMITED

FORM OF PROXY

COMMON SHARES AND
4% CUMULATIVE REDEEMABLE PREFERENCE SHARES

Solicited on behalf of the Management of Shell Canada Limited for the
2005 Annual and Special Meeting of Shareholders

The undersigned shareholder hereby appoints Cathy L. Williams, whom failing Simon A. Fish, or as proxy of the undersigned, with full power of substitution, to attend, act and vote, as designated below, all the shares of Shell Canada Limited (the “Corporation”) held on record by the undersigned on March 10, 2005, for and on behalf of the undersigned at the Annual and Special Meeting of Shareholders to be held on the 29^th day of April, 2005 at 11:00 o’clock in the morning, and at any adjournment thereof. If no choice is specified, the shares represented by this proxy will be voted “FOR” those matters identified in 1, 2 and 3 and “AGAINST” the matter identified in 4, listed below.

1)	FOR r or WITHHOLD AUTHORITY FROM VOTING r as to the election of the following nominees as directors of the Corporation as a group (or line through those individual nominees as to whom authority to vote is withheld): D.H. Burney, I.J. Goodreau, K.L. Hawkins, D.W. Kerr, W.A. Loader, C. Mather, R.W. Osborne, R.J. Routs, R. Royer, N.C. Southern.
2)	FOR r or WITHHOLD AUTHORITY FROM VOTING r as to the appointment of PricewaterhouseCoopers LLP as auditors of the Corporation and the directors’ authorization to fix the auditors’ remuneration.
3)	FOR r or AGAINST r or WITHHOLD AUTHORITY FROM VOTING r as to approval of a special resolution to authorize management of the Corporation to amend the Articles of the Corporation to effect a subdivision of the Corporation’s Common Shares on a 3:1 basis.
4)	FOR r or AGAINST r or WITHHOLD AUTHORITY FROM VOTING r as to the Shareholder Proposal set out in Appendix 4 to the accompanying Management Proxy Circular.
5)	In his or her discretion as to any amendments or variations to the matters identified in 1), 2), 3) or 4) above or any other matters which may properly come before the Meeting.

If the shares are to be voted and neither the shareholder nor the shareholder’s attorney is able to be present personally at the Meeting, this form of proxy must be signed by the shareholder or the shareholder’s attorney duly authorized in writing, or, if the shareholder is a corporation, signed on its behalf by its duly authorized officer(s), dated and returned in the envelope provided for that purpose.
A shareholder has the right to appoint a person (who need not be a shareholder) to represent the shareholder at the Meeting other than one of the persons designated in this form of proxy. To exercise this right, you should draw a line through the printed names and insert the name of your proxy in the space provided or complete another proper instrument of proxy.
Receipt of the Management Proxy Circular is hereby acknowledged. DATED: , 2005	Under applicable Canadian securities regulations, shareholders may elect annually to receive the interim financial statements and related MD&A by mail. If you would like to continue to receive the interim financial statements, please check the box. INTERIM FINANCIAL r STATEMENTS
Signature of Shareholder

Notes:
(1)	Signature should agree with the name on this form of proxy. Attorneys, executors, administrators, guardians, trustees and officers of a corporation should indicate their capacity when signing. If a partnership, an authorized person must sign in the partnership name. Where shares are held jointly, each owner must sign.
(2)	If this form of proxy is not dated in the space provided, it is deemed to bear the date on which it is mailed by management.