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, 2005       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
825,102,612 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

2005 Annual Information Form for the Year Ended Dec 31, 2005

Shell Canada Limited 2005 Annual Report

Notice of Annual and Special Meeting and Management Proxy Circular dated March 10, 2006 including the Form of 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, 2006

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	2005 Annual Information Form for the year ended December 31, 2005.
99.B	Shell Canada Limited 2005 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, 2006, 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 and in the Registration Statement on Form S-8 dated July 29, 2005 of Shell Canada Limited of (i) our report dated February 21, 2006 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders; (ii) our report dated February 21, 2006 relating to the supplemental note, which appears in Schedule VI of the Annual Information Form; and (iii) our report dated February 21, 2006 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
February 21, 2006

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, 2006 by Shell Canada Limited (the “Corporation”) in its annual report on Form 40-F and Annual Information Form, each dated March 10, 2006, with respect to the Corporation’s reserves data and related information for the year ended December 31, 2005.

/s/ Bruce Roberts                    

Bruce Roberts
Chief Reservoir Engineer

January 31, 2006

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, 2006 by Shell Canada Limited (the “Corporation”) in its annual report on Form 40-F and Annual Information Form, each dated March 10, 2006, with respect to the Corporation’s reserves data and related information for the year ended December 31, 2005.

/s/ Allen G. Vanderputten             

Allen G. Vanderputten
Chief Mining Engineer

January 31, 2006

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, 2006

/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, 2006

/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, 2005, 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, 2006	/s/ Clive Mather
	Clive Mather
	President and Chief Executive Officer
Dated: March 10, 2006	/s/ Cathy L. Williams
	Cathy L. Williams
	Chief Financial Officer

EX-99.A

Annual Information Form

Attached to this Annual Information Form is the Annual Report to shareholders for the year ended December 31, 2005 of Shell Canada Limited (Annual Report) and the Management Proxy Circular of the Corporation dated March 10, 2006 (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 23 to 25 and page 21, 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	12
Research and Development	12
Environmental Protection	12
Number of Employees	13
Foreign Operations	13
Risk Factors	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	28
Schedule IV Report on Minable Bitumen Reserves Data by Qualified Reserves Evaluator	30
Schedule V Report of Management and Directors on Oil and Gas Disclosure	31
Schedule VI United States Generally Accepted Accounting Principles and Reporting Practices	33
Auditors’ Reports	35

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, incorporated in 1911, and was continued under the Canada Business Corporations Act on May 1, 1978.

The Corporation’s articles or other establishing documents have been subject to the following material amendments: (i) Supplementary Letters Patent effective May 14, 1973 subdividing the Class “A” and Class “B” common shares of the Corporation on a three-for-one basis; (ii) Articles of Amalgamation effective January 1, 1986 reflecting the Corporation’s amalgamation with a wholly owned subsidiary, Shell Canada Resources Limited; (iii) Articles of Amendment effective June 1, 1989 converting the Class “B” common shares to Class “A” common shares on a four-for-one basis and deleting the Series “A” preferred shares; (iv) Articles of Amendment effective May 20, 1997 splitting the Class “A” common shares on a three-for-one basis; (v) Articles of Amalgamation effective July 1, 1998 reflecting the Corporation’s amalgamation with a wholly owned subsidiary, 177487 Canada Ltd.; (vi) Articles of Amendment dated May 2, 2000 redesignating the Class “A” common shares of the Corporation to common shares and deleting all references to Class “B” common shares; (vii) Restated Articles of Incorporation effective May 18, 2000 consolidating prior amendments; and (viii) Articles of Amendment effective June 6, 2005 subdividing the common shares on a three-for-one basis as of June 21, 2005.

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, is wholly owned and was incorporated under the Canada Business Corporations Act in 1982. Shell Canada Products Limited owns 99.99 per cent of the partnership units and is the managing partner of Shell Canada Products, a partnership governed by the laws of Alberta. The balance of the partnership units are held by a wholly owned subsidiary of the Corporation. Shell Canada Products is engaged in the manufacture, distribution and marketing of refined petroleum products.

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

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, a large integrated petroleum company in Canada, operates principally in three industry segments: 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, natural gas liquids, in situ bitumen and 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

2003   Shell Canada reported earnings of $810 million or $0.98 per common share (adjusted for the three-for-one share split of the issued and outstanding common shares that took effect on the Toronto Stock Exchange on June 21, 2005 (the share split)) compared with earnings of $555 million or $0.67 per share (adjusted for the share split) in 2002. The return on average capital employed (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, to date, in earnings. E&P capital, exploration and predevelopment expenditures were $385 million compared with $339 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   Shell Canada reported earnings of $1,286 million or $1.56 per common share (adjusted for the share split) compared with earnings of $810 million or $0.98 per share (adjusted for the share split) in 2003. ROACE of 19.9 per cent was an improvement over the previous year’s 13.1 per cent. E&P earnings in 2004 were $449 million compared with $619 million in 2003. The decline in earnings was primarily attributed to lower production volumes, higher exploration expenses due to increased activity, higher depreciation charges for the Sable Offshore Energy Project (SOEP) and previously reported charges related to the expensing of Mackenzie Gas Project costs and changes in the Company’s Long Term Incentive Plan (LTIP). E&P capital, exploration and predevelopment expenditures were $451 million compared with $385 million in 2003. Oil Products earnings were $451 million in 2004, up from $344 million in 2003. The improvement was due to strong refining margins, higher prices for benzene and improved feedstock volumes from the integrated Oil Sands operations. Good refinery reliability throughout 2004 also contributed to the results. Oil Products capital expenditures were $313 million compared with $194 million in 2003. Oil Sands generated earnings of $378 million in 2004 versus a loss of $142 million in 2003 when the Athabasca Oil Sands Project (AOSP) was in start-up mode. Higher prices and volumes and lower unit costs were the main contributors to the earnings increase as AOSP production ramped up to design levels over the first nine months of 2004. However, production volumes decreased over the final three months of the year as a result of repair and maintenance activities at the Muskeg River Mine and the Scotford Upgrader. Oil Sands capital expenditures were $179 million compared with $123 million in 2003.

2005   For highlights of 2005, reference is made to the business sections in the Management’s Discussion and Analysis section of the Annual Report found on pages 18 to 58.

TRENDS

2006   Effective January 1, 2006, Oil Sands is responsible for Shell’s Peace River in situ bitumen business, which was previously reported in the E&P segment. For a discussion of the significant initiatives planned by the Company for 2006, reference is made to the business sections in the Management’s Discussion and Analysis section of the Annual Report found on pages 18 to 58.

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.

Exploration & Production explores for, produces and markets natural gas, natural gas liquids, bitumen and sulphur. This upstream business operates four natural gas processing facilities in the Foothills of Alberta and, until December 31, 2005, an in situ bitumen facility near Peace River, Alberta. Effective January 1, 2006, the Peace River business was transferred to Shell Canada’s Oil Sands business. 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.

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 reserves 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 29 to 36 of the Annual Report and in Schedule I and Schedule III on pages 20 and 21 and pages 28 and 29, 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 plc 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 equity 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. Natural gas liquids are used in a variety of petrochemical, refining, and diluent applications, with propane also being consumed by the transportation and space-heating sectors.

NARRATIVE DESCRIPTION OF THE BUSINESS      3  

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 North American markets.

Bitumen   Shell Canada sells its in situ bitumen production from the Peace River facilities to a refinery in the U.S. market. 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 over 40 per cent of Canadian sulphur sales, and approximately 20 per cent of world sulphur sales. Shell markets sulphur primarily to export markets. China, U.S., Australia and Brazil represent Shell’s four largest export markets. 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 68 to 71 of the Annual Report.

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

Natural Gas (%)	2005		2004		2003
Sales to third parties		14		13		14
Sales to related parties		86		87		86
Total natural gas sales		100		100		100

Natural Gas Liquids (%)	2005		2004		2003
Sales to third parties		93		96		98
Sales to related parties		7		4		2
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 four areas: gas fields in the deep foothills and the deep basin region of 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. The Company has acquired significant additional land positions in both northeast British Columbia and the deep basin region of Western Canada. In March 2005, Shell acquired a 20 per cent interest in eight exploration licences in the Orphan Basin located in the deepwater region offshore Newfoundland and Labrador. A seismic program was undertaken in the Orphan Basin during 2005 and an exploratory well is planned for 2006. The Company announced the Tay River discovery in 2004. Tay River began production in May of 2005 and by year-end had the highest gas flow rate of any well in Canada. Two more wells are planned for 2006, one to delineate the original discovery and the other to test a new structure.

4        NARRATIVE DESCRIPTION OF THE BUSINESS

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 2005 prices for natural gas remained strong throughout the first nine months of the year. In the fourth quarter, prices increased further due to production shortages created by hurricanes Katrina and Rita.

Drilling Activity

Reference is made to the “Exploration and Development Wells Drilled” table and as well the “Productive Wells” table on page 85 of the Annual Report.

Present Activity

Reference is made to the “Exploration and Development Wells Drilled” table on page 85 of the Annual Report.

Location of Production

Shell Canada operates and has substantial interests in natural gas plants in Alberta and has substantial interests in natural gas plants in Nova Scotia, which process approximately 80 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 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		59
Jumping Pound		100		151		73
Burnt Timber		82		95		91
Caroline		72		129		83
Wildcat Hills (outside-operated)		34		113		86
Goldboro (outside-operated)		31		565		67

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 2005.

Shell also has interests in three major outside-operated natural gas liquids fractionation and storage facilities.

NARRATIVE DESCRIPTION OF THE BUSINESS      5  

            NGL Fractionation/Storage

		Shell Canada’s		Shell Share		Shell Share
		Interest		Capacity		Utilization 1
		(%)		(thousands of barrels per day)		(%)
Fort Saskatchewan, Alberta
	De-ethanizer		44		31		68
	Fractionator		42		13		47
Sarnia, Ontario
	Fractionator		13		15		95
Point Tupper, Nova Scotia
	Fractionator		31		10		63

¹  Based on average daily throughput relative to available capacity.

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	Tay River
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 85 of the Annual Report.

Interest in Material Properties

Reference is made to the “Landholdings” table on page 90 of the Annual Report.

Reserves Estimates

Reference is made to the “Reserves” section on pages 86 and 87 of the Annual Report and to Schedule I on pages 20 and 21 of this Annual Information Form.

6        NARRATIVE DESCRIPTION OF THE BUSINESS

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, 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 majority shareholder.

Reference is also made to Schedule III and Schedule V on pages 28 and 29 and pages 31 and 32, respectively, of this Annual Information Form.

Reconciliation of Reserves

Reference is made to the “Reserves” section on pages 86 and 87 of the Annual Report.

History

Reference is made to the “Production” table on page 84 of the Annual Report.

REVENUE

Natural Gas ($/mcf)

		2005		2004		2003
Average plant gate price			8.23		6.49		6.46
Royalties			1.70		1.19		1.18
Operating expenses
	Plant and field		1.07		0.83		0.80
	Head office		0.61		0.46		0.26
Total operating expenses			1.68		1.29		1.06
Netback			4.85		4.01		4.22

NARRATIVE DESCRIPTION OF THE BUSINESS      7  

Ethane, Propane and Butane ($/bbl)

		2005		2004		2003
Average plant gate price			34.79		28.71		25.48
Royalties			6.98		5.41		4.73
Operating expenses
	Plant and field		6.43		5.00		4.82
	Head office		3.63		2.78		1.56
Total operating expenses			10.06		7.78		6.38
Netback			17.75		15.52		14.37

Condensate ($/bbl)

		2005		2004		2003
Average plant gate price			66.76		50.46		41.13
Royalties			15.22		11.07		8.87
Operating expenses
	Plant and field		6.43		5.00		4.82
	Head office		3.63		2.78		1.56
Total operating expenses			10.06		7.78		6.38
Netback			41.48		31.61		25.88

Sales Commitments

Volume (millions of boe1)	Source of Production
183.82	Western Canada Sedimentary Basin
22.05	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 29 to 36 of the Annual Report.

OIL SANDS

In 2005, the Athabasca Oil Sands Project (AOSP) completed its second 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.

8        NARRATIVE DESCRIPTION OF THE BUSINESS

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 Scotford 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 Scotford Upgrader is supplied to Shell Canada’s Scotford Refinery, with the remainder moved by pipeline to markets throughout Canada and the United States.

Production of 159,900 barrels per day (bpd) was achieved in 2005, including a record quarterly production level of 178,000 bpd achieved in the fourth quarter of 2005. Shell Canada’s share of bitumen production for the year was approximately 35 million barrels.

The primary objectives for the AOSP over the next few years will be volume growth by improving plant reliability as well as selective investments in debottlenecking and production optimization initiatives. Operations will also focus on continuous improvement in unit operating costs and product values.

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.

Additional information related to Oil Sands may be found on pages 37 to 44 of the Annual Report and in Schedule II and Schedule IV on pages 22 to 27 and page 30, respectively, of this Annual Information Form.

Revenues by Product

Reference is made to the “Segmented Information” note to the consolidated financial statements on pages 68 to 71 of the Annual Report.

The following table sets out the percentage of revenues by customer:

Synthetic Crude Sales (%)	2005		2004		2003
Inter-segment sales		54		54		53
Sales to third parties		41		44		44
Sales to related parties		5		2		3
Total synthetic crude oil sales		100		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 90 of the Annual Report.

NARRATIVE DESCRIPTION OF THE BUSINESS      9  

Reserves Estimates

Reference is made to the “Reserves” section on page 89 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, 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 majority shareholder.

Reference is also made to Schedule IV and Schedule V on page 30 and pages 31 and 32, respectively, of this Annual Information Form.

Reconciliation of Reserves

Reference is made to the “Reserves” section on page 89 of the Annual Report.

History

Reference is made to the “Production” table on page 88 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. 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 45 to 52 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

10        NARRATIVE DESCRIPTION OF THE BUSINESS

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 2005 (2004 – 17 per cent; 2003 – 17 per cent).

The total number of Shell-branded retail sites at year-end 2005 was 1,599 (2004 – 1,661; 2003 – 1,693). The private-brand network consists of 82 retail sites (2004 – 101; 2003 – 116).

Revenues by Product

Reference is made to the “Segmented Information” note to the consolidated financial statements on pages 68 to 71 of the Annual Report.

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

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 majority of purchases were done through an affiliated company of Royal Dutch Shell plc. The definition of crude oil includes Scotford Upgrader feedstocks from the AOSP.

Crude Oil Requirements (%)	2005		2004		2003
Domestic industry production		25		36		39
Shell Canada’s own production		30		27		15
Imported production		45		37		46
Total crude oil requirements		100		100		100

Seasonality

There were no significant seasonal fluctuations in the overall Oil Products business over the year and historically there have been 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 87 per cent in 2005 (2004 – 89 per cent; 2003 – 90 per cent).

Shell Canada’s refineries continue to account for approximately 16 per cent (2004 – 16 per cent; 2003 – 16 per cent) of Canada’s operating refinery capacity in 2005. The location and rated capacity of each of Shell’s refineries at December 31, 2005 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)		18 900		118 000
Total		51 600		324 000

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.

NARRATIVE DESCRIPTION OF THE BUSINESS      11  

In 2005, Shell’s lubricant blending and packaging plant in Brockville, Ontario, produced 177 million litres of lubricants. This represents an increase of 1.7 per cent over 2004 volumes. The Calgary grease manufacturing facility produced 3.3 million kilograms of soap-based and microgel-based greases in 2005. The introduction of North American Aeroshell Grease production helped increase volumes by 10 per cent over the prior year for the second year in a row.

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.

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 the Company based on 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 venture parties with interests in the initial Muskeg River Mine development have the option to participate in the future development of Shell’s other existing Athabasca oil sands leases. Shell Canada, in turn, has the option to participate in leases purchased by the other joint venture parties.

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 $250 million in 2005 was reviewable (2006 – $265 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 support a continued asset rationalization program by the Company to improve operating efficiencies within its network.

RESEARCH AND DEVELOPMENT

Research and development expense was $41 million in 2005 (2004 – $28 million; 2003 – $10 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 hazards 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 to International Standards Organization (ISO) 14001. All major facilities in the Oil Products manufacturing business and the Oil Sands business (Muskeg River Mine and Scotford Upgrader) are also registered to this international environmental management standard.

12        NARRATIVE DESCRIPTION OF THE BUSINESS

Total environmental expenditures for Shell Canada in 2005 and the previous two years are shown in the following table:

Environmental Expenditures ($ millions)	2005		2004		2003
Operating costs		89		70		80
Capital costs		313		168		25
Restoration and reclamation		37		40		52
Total		439		278		157

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. Total environmental fines and penalties paid in 2005 did not exceed $1,000.

Capital costs   These include the 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 2005 was on the ultra-low-sulphur diesel (ULSD) project ($242 million) at Shell’s Montreal East and Scotford refineries and the Superclaus project at Jumping Pound ($25 million). The ULSD project is designed to provide product that can meet new legislated sulphur levels in automotive tailpipe emissions. The Superclaus project at Jumping Pound was designed to improve overall facility sulphur recovery from 97% to 98%. The facility is currently realizing a 98.2% recovery with an expected long-term recovery of 98.4%.

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 2005 was 4,564 compared with 4,003 at the end of 2004. The number of employees in each segment is as follows:

Number of Employees
As at December 31	2005		2004		2003
E&P		1 000		904		859
Oil Products		2 078		1 921		1 930
Oil Sands		665		505		434
Corporate*		821		673		627
Total		4 564		4 003		3 850

^*  In 2003, HSE employees were centralized into the Corporate segment.

FOREIGN OPERATIONS

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

RISK FACTORS

Reference is made to the Risk Management Sections on pages 26, 36, 44, 52 and 58 of the Annual Report.

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 62 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 62 and the “Data Per Common Share” table on page 91 of the Annual Report.

Total Assets

Reference is made to the “Consolidated Balance Sheet” table on page 64 of the Annual Report.

Long-Term Financial Liabilities

Reference is made to the “Consolidated Balance Sheet” table on page 64 of the Annual Report.

Cash Dividends Declared Per Share

Reference is made to the “Data Per Common Share” table on page 91 of the Annual Report.

Factors Affecting Comparability

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 (LTIP) resulted in an $82 million charge to earnings 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 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.

2005   The impact of the Company’s LTIP resulted in a $173 million charge to earnings due to strong appreciation in the share price during the year. The use of non-capital losses increased earnings by $164 million in 2005 and, along with proceeds from insurance settlements of $94 million, outweighed the effect of the higher LTIP charge. The Company also recorded a favourable tax settlement of $64 million related to prior year returns.

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

14        SELECTED CONSOLIDATED FINANCIAL INFORMATION

Trading Price and Volume

Reference is made to the “Stock Trading Information” table on page 91 of the Annual Report.

The monthly financial and stock trading information as quoted on the Toronto Stock Exchange for 2005 is as follows:

            Share Price (Dollars)

	Jan		Feb		Mar		Apr		May		Jun		Jul		Aug		Sep		Oct		Nov		Dec		Total
High		26.75		28.60		31.67		29.90		29.32		34.39		36.00		40.09		41.62		41.25		37.75		42.35		42.35
Low		25.26		25.11		28.33		26.84		26.84		28.88		33.30		35.54		38.70		32.45		32.60		34.68		25.11
Close		26.13		28.52		29.00		28.07		28.87		32.89		35.83		38.50		40.65		32.88		34.96		42.05		42.05
Volume (000)		6 195		15 924		9 898		8 439		5 614		7 908		7 317		8 225		6 819		9 921		7 032		6 767		100 059

Credit Ratings

Reference is made to page 55 of the Annual Report.

DIVIDENDS

Dividends are declared at the discretion of the Board of Directors of the Corporation. At the annual and special meeting of shareholders held April 29, 2005, the Company’s shareholders approved a three-for-one share split, which took effect on the Toronto Stock Exchange on June 21, 2005. In 2005, dividends declared and paid for the year totalled $0.367 per common share (adjusted for the share split), up from $0.313 per share in 2004.

Reference is made to the “Summary of Quarterly Results” table and to the “Selected Annual Financial Information” table on page 19 of the Annual Report.

UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Oil and Gas Disclosure

Disclosure, in accordance with Statement No. 69 of the United States Financial Accounting Standards Board (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 33 and 34 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.

The Emerging Issues Task Force (EITF) reached a consensus regarding EITF Issue No. 04-13 Accounting for Purchases and Sales of Inventory with the Same Counterparty that a nonmonetary exchange whereby an entity transfers (a) raw materials or work in process (WIP) for raw materials or WIP or (b) finished goods inventory for finished goods inventory, should not be recognized at fair value. This EITF does not impact the Corporation’s current accounting treatment for nonmonetary exchange transactions.

SELECTED CONSOLIDATED FINANCIAL INFORMATION      15  

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 (a) there have been sufficient oil and gas reserves found to justify completion as a producing well if the required capital expenditure is made, and (b) 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)	2005			2004			2003
Beginning balance at January 1		44 106			68 102			59 088
Additions to exploratory well costs pending the determination of proved well reserves		57 977			101 790			72 295
Reclassification to well, facilities, and equipment based on the determination of proved reserves		(29 777	)		(11 157	)		(21 179	)
Exploratory well costs charged to expense		(34 596	)		(114 629	)		(42 102	)
Ending balance at December 31		37 710			44 106			68 102

New United States Generally Accepted Accounting Principles

In December 2004, FASB Statement No. 123(R) Stock-Based Payment was issued. Pursuant to the U.S. Securities and Exchange Commission’s Final Rule Release dated April 21, 2005, registrants that are not a small business issuer are required to prepare financial statements in accordance with FASB Statement No. 123(R) beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Effective for 2006, 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, 2006. Based on Shell Canada’s share price at December 31, 2005, it is estimated that there would be an increase of approximately $20 million before taxes in U.S. GAAP earnings.

Management’s Discussion and Analysis

Reference is made to pages 18 to 58 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. Effective January 1, 2005, the Corporation adopted Accounting Guideline 15 Consolidation of Variable Interest Entities. The standard mandates that certain entities should be consolidated by the primary beneficiary. Accordingly, the Corporation has consolidated the lease arrangement for large mobile equipment. Reference is made to the “Accounting Policies” note on page 65 of the Annual Report.

The Corporation has sold accounts receivable under an accounts receivable securitization program. In 2005, this $600 million program was reduced to zero and the Corporation elected to terminate the program.

Both of these arrangements were cost-effective to the Corporation versus its alternatives.

Market for Securities and Transfer Agent

Reference is made to “Investor Information” on page 102 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 92 to 95 of the Annual Report, the “Corporate Governance Practices” section on pages 96 to 101 of the Annual Report and pages 56 to 69 of the Proxy Circular and the “Election of Directors” section on pages 7 to 21 of the Proxy Circular.

The following were officers of the Corporation as at December 31, 2005:

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
Brian E. Straub 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
David Fulton Calgary, Alberta, Canada	General Manager, Human Resources
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
Richard W. Riegert Calgary, Alberta, Canada	Acting Head of Legal, Associate General Counsel, E&P and Assistant Secretary
Susan S. Boughs Calgary, Alberta, Canada	Chief Compliance Officer, Associate General Counsel, Regulatory & Compliance and Assistant Secretary
Shannon L. Cosmescu Calgary, Alberta, Canada	Acting Corporate Secretary, 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

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 five committees of the Board of Directors. Reference is made to pages 96 to 101 of the Annual Report for a discussion of the Corporation’s corporate governance practices.

Reference is made to “Interest of Informed Persons in Material Transactions” on page 48 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

Until July 20, 2005, 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) held, indirectly, approximately 78 per cent of the Corporation’s common shares. On July 20, 2005, Royal Dutch and Shell T&T were unified following receipt of shareholder approval and the satisfaction of applicable legal conditions. The unified entity, Royal Dutch Shell plc, holds, indirectly, approximately 78 per cent of the Corporation’s common shares. Royal Dutch Shell plc is an English company with headquarters in the Netherlands.

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, Royal Dutch/ Shell 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 paid a U.S. $120 million civil penalty and undertook to spend an additional U.S. $5 million developing a comprehensive internal compliance program.

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 2005, together with the documents incorporated by reference therein; the Proxy Circular for the most recent annual meeting of shareholders; the Corporation’s Annual Report containing comparative financial statements for 2005, together with the Auditors’ Report thereon; and the Management’s Discussion and Analysis and interim financial statements filed subsequent to December 31, 2005.

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 a 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 Exploration & Production 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.

As at December 31 ($ millions)	2005		2004		2003
CAPITALIZED COSTS
Unproved oil and gas reserves		426		209		191
Proved oil and gas reserves		5 442		4 877		4 600
		5 868		5 086		4 791
Accumulated depreciation, depletion and amortization		3 231		3 016		2 539
Net capitalized costs		2 637		2 070		2 252

Year ended December 31 ($ millions)	2005		2004		2003
COSTS INCURRED
Property acquisition		260		26		12
Exploration costs		146		171		118
Development costs		542		323		301
Total costs incurred		948		520		431

Year ended December 31 ($ millions)
RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES
Revenues	2 799	2 361	2 298
Operating expenses	961	749	691
Transportation expenses	331	309	270
Exploration and predevelopment expenses	156	221	81
Depreciation, depletion, amortization and retirements	366	353	282
Income tax	336	275	346
Results of operations from producing activities	649	454	628

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 or fair 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)		2005			2004			2003
FUTURE NET CASH FLOWS
Future cash inflow			15 281			10 776			13 892
Future operating and development costs			4 596			4 029			5 858
Future income taxes			3 392			2 045			2 500
Future net cash flows1			7 293			4 702			5 534
10% annual discount for estimated timing of cash flows			2 624			1 720			2 325
Standardized measure of discounted future net cash flows from proved oil and gas reserves			4 669			2 982			3 209
CHANGES IN FUTURE NET CASH FLOWS
Balance at beginning of year			2 982			3 209			3 689
Changes resulting from:
	Sales, net of operating costs		(1 528	)		(1 016	)		(1 073	)
	Net changes in prices, development and operating costs		2 212			(226	)		(457	)
	Extensions, discoveries and improved recoveries, less related costs		1 065			597			224
	Development costs incurred during the period		509			319			295
	Revisions of previous quantity estimates		(101	)		(265	)		(809	)
	Purchases (sales) of reserves in place		53			(173	)		–
	Accretion of discount		348			382			499
	Net changes in income taxes		(871	)		155			841
Net increase (decrease) for the year			1 687			(227	)		(480	)
Balance at end of year			4 669			2 982			3 209

¹  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.

Since the beginning of the Company’s 2005 fiscal year, the Company has not filed or furnished 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 cleanup 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’s original design rate is 155,000 barrels per day of bitumen production, with opportunities to expand production to approximately 270,000 barrels per day. These facilities are in new condition, having commenced operations in June of 2003, and processed 58 million barrels of bitumen in 2005 (159,900 barrels per day). 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 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 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. During 2005, Shell Canada also acquired seven additional minable oil sands leases through Alberta Crown land sales. These leases are shown in table below and have lease expiry dates in 2020.

Athabasca West		Athabasca East
Lease 309	7405120309	Lease 015	7405120015
Lease 310	7405120310	Lease 631	7405090631
Lease 351	7405080351	Lease 632	7405090632
Lease 352	7405080352

Shell Canada also completed two exchanges in 2005. The respective Asset Exchange Agreements have been executed however the exchanged lease areas have yet to be registered with the Alberta Department of Energy. All lease holdings are shown in Figure 2. All of these lease holdings may be extended by completing a minimum level of development prior to their expiry. There are no current, and

22        SCHEDULE II

no known previous, commercial operations on any of these lease holdings. The MRM, together with Lease 13 and the adjacent and acquired 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. 970588) 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);
3.	Muskeg River Mine Project Decision Report 99-2 by the EUB dated February 12, 1999 (available online 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 online 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 online at www.gov.ab.ca/env/water/ approvalviewer.html search parameter — Albian Sands Energy Inc.).

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 to approximately 270,000 barrels per calendar day of bitumen production was filed with the regulatory agencies in April 2005. It is available on-line at www.shell.ca/oilsands. Regulatory approval is targeted for mid-2006 when an investment decision regarding the proposed expansion is planned to be taken.

The EUB has also provided Shell Canada with approval for Phase 1 of the proposed Jackpine Mine, a mining and extraction development 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. Site development activities commenced in late 2005 with major plant construction to be underway in late 2006. The planned development for the Jackpine Mine will include appropriate integration with the existing Muskeg River Mine base development and the potential to also extend development to Leases 88 and 89. Additional regulatory approval will be required for the incorporation of Leases 88 and 89, as well as the future integration of the other growing inventory of additional area lease holdings.

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.

SCHEDULE II      23  

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 89 of the Annual Report and to Schedule IV on page 30 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 2005 to incorporate the results from the development drilling in 2004 and 2005. This represented an update relative to the original mine plans. Total reserves continue to be defined based on the original premise of a 30-year development plan.

Figure 3 shows the mining areas associated with the designated reserves for the Muskeg River Mine. Figure 4 shows the core hole coverage for those same areas.

Location of the Muskeg River Mine

24        SCHEDULE II

Lease Holdings

SCHEDULE II      25  

Muskeg River Mine Reserves Areas

26        SCHEDULE II

Muskeg River Mine Core Hole Coverage

SCHEDULE II      27  

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, 2005. The reserves data consist of the following:

(a)	proved oil and gas reserves estimated as at December 31, 2005, 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, 2005:

		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	$4,669 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.

28        SCHEDULE III

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 P. Eng.
           Chief Reservoir Engineer


           January 31, 2006

SCHEDULE III      29  

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, 2005. The reserves data consist of proved and probable minable bitumen reserves estimated as at December 31, 2005.
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 P. Eng.
           Chief Mining Engineer


           January 31, 2006

30        SCHEDULE IV

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, 2005, 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, 2005.

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 2005, 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 would be afforded by our involving this firm or would be afforded by our involving any other independent qualified reserves evaluators or independent qualified reserves

SCHEDULE V      31  

auditors to evaluate or audit and review the reserves data. The primary factors supporting the involvement of independent qualified reserves 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 15 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 26 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, 2006

32        SCHEDULE V

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   FASB Statement No. 133 requires that hedging activity that does not qualify as a hedge, be mark-to-market and charged to earnings.

Stock-Based Compensation   FASB Statement No. 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.

In December 2004, FASB Statement No. 123(R) Stock-Based Payment was issued. Pursuant to the U.S. Securities and Exchange Commission’s Final Rule Release dated April 21, 2005, registrants that are not a small business issuer are required to prepare financial statements in accordance with FASB Statement No. 123(R) beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. Effective for 2006, 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, 2006.

Asset Retirement Obligations   FASB Statement No. 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.

SCHEDULE VI      33  

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)		2005			2004			2003
Earnings			2 014			1 286			810
Increase (decrease):
	Capitalized interest amortized		(4	)		(15	)		(14	)
	Pension expense		12			(1	)		(31	)
	Change in fair value of derivative instruments		–			2			(7	)
	Operating expense		(19	)		19			13
	Depreciation expense		(10	)		(25	)		(13	)
	Interest expense		6			(6	)		–
	Stock–based compensation		–			6			(3	)
	Income taxes		5			10			12
Adjusted earnings attributable to common shares			2 004			1 276			767
Cumulative effect of change in accounting policy after–tax			–			–			(45	)
Adjusted earnings after cumulative effect of change in accounting policy after–tax			2 004			1 276			722
Other comprehensive income			(82	)		(3	)		(54	)
Total comprehensive income			1 922			1 273			668
Basic earnings per common share (dollars)1			2.43			1.55			0.93
Diluted earnings per common share (dollars)1			2.40			1.54			0.93
Basic earnings per common share after cumulative1 effect of change in accounting policy (dollars)			2.43			1.55			0.88

¹  2004 and 2003 per common share information has been restated to reflect the impact of the share split.

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

($ millions)		2005			2004			2003
Accumulated other comprehensive income (loss), beginning of year			(172	)		(169	)		(115	)
Increase (decrease):
	Minimum additional pension liability		(123	)		(2	)		(66	)
	Minimum additional pension liability — tax		41			(1	)		12
Accumulated other comprehensive income (loss)			(254	)		(172	)		(169	)

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 since this was a related party transaction.

In 2005, 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 is the cumulative result of weakening equity markets in prior years and a decline in bond yields which are used to determine the discount rate. The additional minimum liability of $383 million (2004 – $260 million; 2003 – $258 million) would be reflected as a reduction of pension assets, with a corresponding reduction of the Company’s future income tax liability of $129 million (2004 – $88 million; 2003 – $89 million).

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

34        SCHEDULE VI

AUDITORS’ REPORTS

To the Shareholders of Shell Canada Limited:

Under date of February 21, 2006, we reported on the consolidated balance sheets of Shell Canada Limited as at December 31, 2005, 2004 and 2003 and the consolidated statements of earnings and retained earnings and cash flows for each of the three years in the period ended December 31, 2005, as incorporated by reference in the Annual Information Form with respect to the year ended December 31, 2005. 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
February 21, 2006

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 February 21, 2006, 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
February 21, 2006

AUDITORS’ REPORTS      35  

EX-99.B

2 0 0 5

A N N U A L

R E P O RT

          Shell Canada Limited

      Shell Canada Limited

1	Highlights
10	President’s Message
18	Management’s Discussion and Analysis
	29 Exploration & Production
	37 Oil Sands
	45 Oil Products
	53 Corporate
59	Financial Information
	60 Management’s Report
	61 Auditors’ Report
	62 Consolidated Financial Statements
83	Supplemental Disclosure
	83 Oil Products
	84 Exploration & Production
	88 Oil Sands
	90 Landholdings
	91 Financial Data and Quarterly Stock-Trading Information
92	Corporate Information
	92 Corporate Directory and Board of Directors
	96 Corporate Governance Practices
102	Investor Information

Unless the content indicates otherwise, the terms Shell, Shell Canada, Shell Canada Limited, Corporation, Company, we, our and its are used interchangeably in this report to refer to Shell Canada Limited and its consolidated subsidiaries.

The terms Royal Dutch Shell and Royal Dutch Shell plc are used interchangeably in this report to refer to Royal Dutch Shell plc, which is Shell Canada’s majority shareholder. The term Shell Group refers to the worldwide Royal Dutch Shell enterprise as a whole, including Royal Dutch Shell plc.

This annual report contains references to measures commonly referred to as non-GAAP measures. Additional disclosure relating to these measures can be found on pages 1,18 and 88.

This report contains “forward-looking statements” based upon management’s assessment of the Corporation’s future plans and operations. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “forecast,” “target,” “project” or similar words suggesting future outcomes or statements regarding an outlook.

The forward-looking statements contained in this report include references to anticipated growth and long-term profitability, future capital and other expenditures, organizational capability, the Corporation’s plans for growth, development, drilling, construction and expansion, resources and reserves estimates, future production of resources and reserves, receipt of regulatory approvals, reduction in unit costs, operational and product reliability, project execution, refining margins, market share and market conditions. Forward looking statements of this nature are also contained in the Corporation’s filings with Canadian and U.S. securities regulatory authorities.

Readers are cautioned not to place undue reliance on forward-looking statements. Although the Corporation believes that the expectations represented by such forward-looking statements are reasonable based on the information available to it on the date of this report, there can be no assurance that such expectations will prove to be correct.

Forward-looking statements involve numerous assumptions, known and unknown risks, and uncertainties that may cause the Corporation’s actual performance or results to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These assumptions, risks and uncertainties include, but are not limited to, demand for oil, gas and related products, disruptions in supply, fluctuations in oil and gas prices, industry operating conditions, operating costs, stakeholder engagement, project startup, schedules and execution, market competition, operational reliability, product quality, labour availability, shortages of materials and equipment, the uncertainties involving the geology of oil and gas deposits and reserves estimates, including the assumption that the quantities estimated can be found and profitably produced in the future, fluctuations in 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. Readers should refer to the Management’s Discussion and Analysis and Risk Management sections of this report for further discussion of the risks and uncertainties identified by the Corporation.

The forward-looking statements contained in this report are made as of March 10, 2006, and the Corporation does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. This cautionary statement expressly qualifies the forward-looking statements contained in this report.

HIGHLIGHTS

FINANCIAL HIGHLIGHTS	2005		2004		2003
Earnings ($ millions)		2 014		1 286		810
Cash flow from operations ($ millions)1		3 056		2 129		1 701
Capital, exploration and predevelopment expenditures ($ millions)		1 715		951		713
Return on average common shareholders’ equity (%)		27.3		21.3		15.4
Return on average capital employed (%)2		26.8		19.9		13.1
Per common share (dollars)
Earnings basic		2.44		1.56		0.98
Earnings diluted		2.41		1.55		0.97
Dividends		0.367		0.313		0.273

OPERATING HIGHLIGHTS	2005		2004		2003
PRODUCTION
Natural gas — gross (mmcf/d)		512		540		562
Ethane, propane and butane — gross (bbls/d)		23 300		25 100		26 700
Condensate — gross (bbls/d)		15 300		15 200		16 800
Bitumen — gross (bbls/d)
Exploration & Production		8 900		8 100		9 200
Oil Sands		95 900		81 300		46 300
Total bitumen		104 800		89 400		55 500
Sulphur — gross (long tons/d)		5 300		5 600		5 900
Crude oil processed by Shell refineries (m3/d)		44 900		45 100		42 900
SALES
Synthetic crude sales excluding blend stocks (bbls/d)		99 400		83 700		46 100
Purchased upgrader blend stocks (bbls/d)		37 100		38 200		17 700
Total synthetic crude sales(bbls/d)		136 500		121 900		63 800
Petroleum product sales(m3/d)		49 100		47 500		45 700
PRICES
Natural gas average plant gate netback price ($/mcf)		8.23		6.49		6.46
Ethane, propane and butane average field gate price ($/bbl)		34.79		28.71		25.48
Condensate average field gate price ($/bbl)		66.76		50.46		41.13
Synthetic crude average plant gate price ($/bbl)		57.55		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 (see page 18).
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.

RESULTS IN 2005

>	Record earnings and cash flow in 2005 were due mainly to record hydrocarbon volumes and solid operating performances by all of Shell’s business units, which allowed the Company to capitalize on strong commodity prices and refining margins. Shell Canada’s return on average capital employed was 26.8 per cent.
>	Constrained global supply combined with growth in demand pushed crude oil prices to record high levels in 2005. The average annual price of crude oil in 2005 was $56.56 US per barrel (West Texas Intermediate) compared with $41.40 US in 2004. Natural gas prices averaged $8.71 Cdn per thousand cubic feet in 2005 compared with $6.52 Cdn in 2004. Market differentials between light and heavy crude oil remained wide.
>	Oil Products earnings benefited from strong refining margins, which resulted from low North American inventories and strong demand. Marketing margins remained depressed in a highly competitive environment.
>	Capital, exploration and predevelopment expenditures for 2005 were $1,715 million compared with $951 million in 2004, which represents an 80 per cent increase year over year.

HIGHLIGHTS SHELL CANADA LIMITED     1

COMMITMENTS

COMPANY GOALS
>	Growth and profitability are the Company’s main goals within an overarching commitment to sustainable development. Pursuit of a strong and diverse portfolio of growth opportunities requires sizable capital investment funded by robust and profitable base businesses. Although the return on average capital employed may fall in periods of heavy investment, the resulting growth will support future, long-term profitability in a continuing cycle.
SUSTAINABLE DEVELOPMENT
>	Sustainable development is the integration of economic, environmental and social considerations into the Company’s day-to-day activities and future plans. 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.
OPERATIONAL EXCELLENCE
>	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 every part of the Company in terms of plant reliability, project execution, health, safety and the environment, customer satisfaction and stakeholder engagement.
SAFETY
>	The health and safety of employees and contractors is Shell Canada’s top priority. The Company’s safety goal is to cause “no harm to people.”
COMPLIANCE
>	Good corporate governance is fundamental to the integrity and reputation of the Company. Policies and procedures are in place to foster compliance with applicable regulations governing every aspect of the Company’s business. All Shell employees must conduct business in accordance with these policies and procedures, and Shell’s business principles and code of ethics.

AT A GLANCE

Shell Canada Limited is a large integrated petroleum company in Canada comprising three business units supported by a number of corporate departments.

PROFILE

EXPLORATION & PRODUCTION

Exploration & Production explores for, produces and markets natural gas, natural gas liquids, bitumen and sulphur. This upstream business operates four natural gas processing facilities in the Foothills of Alberta and, until December 31, 2005, an in situ bitumen facility near Peace River, Alberta. Effective January 1, 2006, the Peace River business was transferred to Shell Canada’s Oil Sands business. 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.

OIL SANDS

Oil Sands: Shell Canada holds a 60 per cent interest in the Athabasca Oil Sands Project (AOSP). The AOSP’s fully integrated operations include the Muskeg River Mine and extraction plant located north of Fort McMurray in northern Alberta and the Scotford Upgrader adjacent to Shell’s Scotford Refinery near Edmonton, Alberta. Shell holds leases in the Athabasca area containing recoverable bitumen estimated at more than 6.5 billion barrels, excluding additional leases acquired in 2005. Effective January 1, 2006, Oil Sands is responsible for Shell’s Peace River in situ bitumen business.

OIL PRODUCTS

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. The Company’s Canada-wide network of 1,681 Shell-branded retail sites includes convenience food stores and car wash facilities.

2     SHELL CANADA LIMITED HIGHLIGHTS

ACHIEVEMENTS

EXPLORATION & PRODUCTION
>	RECORD EARNINGS of $665 million
>	RETURN ON AVERAGE CAPITAL EMPLOYED of 37.2 percent
>	ACHIEVED A HIGHER RATE OF NATURAL GAS PRODUCTION going into 2006 than at the beginning of 2005
>	MAJOR LAND ACQUISITIONS in Alberta and British Columbia and exploration licences offshore Newfoundland and Labrador
>	E&P GROSS NATURAL GAS RESERVES ADDITIONS essentially replaced annual production
OIL SANDS
>	RECORD EARNINGS of $790 million
>	RETURN ON AVERAGE CAPITAL EMPLOYED of 29.4 percent
>	AVERAGE BITUMEN PRODUCTION at 103 percent of the 155,000 barrels per day design rate
>	IMPROVED RELIABILITY at the Scotford Upgrader
>	ACQUISITION OF ADDITIONAL ATHABASCA OIL SANDS leases for potential future expansions
OIL PRODUCTS
>	EARNINGS of $438 million
>	RETURN ON AVERAGE CAPITAL EMPLOYED of 19.9 percent
>	RECORD LIGHT OIL production
>	COMPLETED CONSTRUCTION of ultra-low-sulphur diesel projects on time and within budget
>	SUCCESSFUL LAUNCH of Shell V-Power™ premium gasoline

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

LOOKING FORWARD

EXPLORATION & PRODUCTION
>	CONTINUE TO GROW PRODUCTION in the Foothills of Alberta by developing existing and new assets
>	SUSTAIN PRODUCTION in the current Sable Offshore Energy Project fields
>	DRI LL FIRST EXPLORATION WELL in the Orphan Basin offshore Newfoundland and Labrador
>	SIGNIFICANTLY GROW the Unconventional Gas business
>	COMPLETE REGULATORY HEARINGS on the Mackenzie Gas Project
OIL SANDS
>	MAINTAIN PRODUCTION and improve profitability from existing operations
>	OBTAIN REGULATORY APPROVALS for production optimization and expansion plans
>	COMPLETE FIRST MAJOR TURNAROUND of the AOSP for both the mine and the upgrader in mid-2006
>	START CONSTRUCTION of the first mine and upgrader expansion in 2006
>	CONTINUE TO ADVANCE front-end engineering for long-term growth plans, including Peace River expansion
OIL PRODUCTS
>	COMPLETE COMMISSIONING of ultra-low-sulphur diesel supply infrastructure in early 2006, ahead of the legislated deadline
>	CONTINUE TO IMPROVE manufacturing reliability and efficiency
>	WORK TO IMPROVE retail market share
>	CONTINUE TO CREATE VALUE through strategic alliances throughout the Oil Products business
>	OFFER QUALITY, DIFFERENTIATED FUELS and lubricants reliably and with a strong brand image

HIGHLIGHTS SHELL CANADA LIMITED     3

E X P L O R A T I O N & P R O D U C T I O N E & P ’s strategy in 2006 is to increaE X P L O R A T I O N & P R O D U C T I O N E & P ’s strategy in 2006 is to increase Shell’s natural gas production and reserves. E X P L O R A T I O N & P R O D U C T I O N E & P ‘s strategy in 2006 is to increase Shell’s natural gas production and reserves. John Vassaur (facing), Drilling Engineer at the Peace River in situ bitumen complex, explains the mechanics of a “walking” drilling rig to Senior Thermal Engineer Mirko Zatka (left) and new-hire Production Engineer Mathieu Rae.se S h e l l ’s natural gas production and reserv e s . John Vassaur (facing), Drilling Engineer at the Peace River in situ bitumen complex, explains the mechanics of a “walking” drilling rig to Senior Thermal Engineer Mirko Zatka (left) and new-hire Production Engineer Mathieu Rae.

4     SHELL CANADA LIMITED HIGHLIGHTS

O I L S A N D S Oil Sands key goals include reducing operating costs and improving efficiency. The primary separation cells at the Muskeg River Mine where sand and water is separated from bitumen froth.

6     SHELL CANADA LIMITED HIGHLIGHTS

O I L P R O D U C T S Oil Products integrated strategy includes delivering on the promise of the Shell brand. Drums of lubricating oil await distribution at the Calgary Lubricants and Grease Plant.

8     SHELL CANADA LIMITED HIGHLIGHTS

PRESIDENT’S MESSAGE
MARCH 10, 2006

Feet on the ground,
eyes on the horizon.

10     SHELL CANADA LIMITED PRESIDENT’S MESSAGE

CLIVE MATHER

President and Chief Executive Officer

It gives me great pleasure to report on Shell Canada’s progress in 2005, including the headline achievement of $2 billion in full-year earnings. It was only four years ago that earnings broke the $1 billion barrier and few of us could have imagined doubling that result in such a short time.

Shell Canada’s 2005 results reflect not only the prevailing business environment throughout the year, but also strong operating performances by our business units. The Company’s initial investments in oil sands are already yielding substantial benefits and we are planning major expansions in the coming years. Natural gas production from Shell’s Foothills fields and from the unconventional gas business is increasing, all of which helps provide a firm foundation on which to build a sustainable future.

Keys to the Company’s success and sustainable growth are its people and its ability to exploit technology. Shell Canada has an enviable workforce — respected for its values, expertise and commitment. Last year, we attracted a record number of new hires as we prepare for a series of major growth projects in the future. We also demonstrated our capacity to develop and deploy leading-edge technology in many areas of business. This has resulted in exploration success and improvements to environmental performance, costs and customer satisfaction. Further advances will be needed to keep ahead of the competition and deliver energy solutions to help address environmental issues such as climate change and sustainability.

PRESIDENT’S MESSAGE SHELL CANADA LIMITED     11

For the second consecutive year, Shell Canada posted record earnings.

Financial Performance

For the second consecutive year, Shell Canada posted record earnings, which totalled $2,014 million in 2005, or $2.44 per common share, compared with $1,286 million or $1.56, respectively, in 2004. In addition to strong operational performances, continuing high commodity prices, strong refining margins and an increasing contribution from our Oil Sands business were the main reasons for the 56.6 percent increase over the previous year. Cash flow reached a record high of $3,056 million compared with $2,129 million in 2004.

Between June 1997, when Shell last undertook a share split, and March 2005, Shell Canada’s share price rose to more than $90 per common share from around $20. At the end of April, our shareholders approved a three-for-one share split, which took effect June 21, 2005. Total shareholder return for 2005 was 59.3 per cent and quarterly dividends increased to $0.11 per common share from $0.083.

Operational Performance

Total hydrocarbon production in 2005 reached a record high, with the Athabasca Oil Sands Project (AOSP) achieving an average production rate of 159,900 barrels per day (bbls/d) of bitumen.

At year-end 2005, natural gas production was higher than at the end of 2004, which gives us confidence that we can now overcome natural field decline. This achievement was due in part to Shell’s Tay River well in the Foothills of Alberta. Tay River came on stream in early May and, following subsequent retubing, soon became the most prolific land-based natural gas producing well in Canada in recent years. During 2005, two additional wells in the South Venture field of the Sable Offshore Energy Project (SOEP) also came on stream, helping to maintain production levels offshore Nova Scotia.

12     SHELL CANADA LIMITED PRESIDENT’S MESSAGE

MEMBERS OF SHELL CANADA’S SENIOR MANAGEMENT TEAM, FROM LEFT:

Ian Kilgour, Senior Vice President, Exploration & Production; Cathy Williams, Chief Financial Officer; Tim Bancroft, Vice President, Sustainable Development, Technology and Public Affairs; Clive Mather, President and Chief Executive Officer; David Weston, Senior Vice President, Oil Products; Paul Lapensée, Director, Corporate Strategies; Brian Straub, Senior Vice President, Oil Sands; David Fulton, Vice President, Human Resources.

In 2005, Exploration & Production (E&P) more than tripled its basin-centred gas (BCG) landholdings with important acquisitions in northeast British Columbia and the area of Hinton, Alberta. Following promising test results from BCG wells along the Alberta/British Columbia border, Shell Canada delivered its first BCG to market in November.

In November, Shell and the other proponents of the Mackenzie Gas Project were pleased to announce our readiness to proceed to public hearings after a six-month hiatus. Following intensive discussions, which addressed many of the important issues, we felt able to resume work on this important project.

Our Oil Sands business made remarkable progress in 2005, with the AOSP achieving sustained, reliable bitumen production in excess of the 155,000 bbls/d design rate. To support longer-term growth, Shell Canada filed regulatory applications in April for its Oil Sands mining and upgrading expansion projects and, in the second half of the year, acquired several additional oil sands leases in the Athabasca area. Although the average synthetic crude oil price strengthened over the year, heavy oil market differentials remained relatively wide and unit cash operating costs reflected rising costs for energy, materials and services.

PRESIDENT’S MESSAGE SHELL CANADA LIMITED     13

Our goal is to embed a safety culture in the hearts and minds of every Shell employee and contractor right across the Company.

In 2005, our Oil Products business faced a number of challenges in the form of supply disruptions and price volatility. Gasoline prices spiked at more than $1.00 per litre at the pump in early September, as our refineries and distribution systems worked hard to maintain the supplies of refined products to our customers in the face of extremely tight crude oil supply. The gap between supply and demand was largely the result of reduced crude and refined product availability due mainly to closures and hurricane damage to facilities in the U.S. Gulf of Mexico. Operational issues at our refineries, particularly the Montreal East Refinery, did not help the situation.

Marketing margins remained tight throughout the year, but we were able to maintain market share in an extremely competitive environment. Oil Products executed the successful launch of Shell V-Power™ premium gasoline, which is already having an impact in the market, and, in alliance with Flying J Canada Inc., opened the first co-branded travel plaza in Alberta.

Safety Performance

Although Shell Canada’s safety performance was good by industry standards, the number of lost-time incidents (LTIs) recorded in 2005 was disappointing. Consequently, we are placing even more focus on developing a safety culture that encourages people to look out for themselves and look out for others. Our goal is to embed a safety culture in the hearts and minds of every Shell employee and contractor right across the Company.

I know that we can improve, because there are already many excellent examples of best practice in the company. In February 2005, Montreal East Refinery celebrated five million hours without an LTI and, in July, Muskeg River Mine achieved one year and four million hours without an LTI. In September, Shell’s Foothills Operations recorded one million hours LTI-free and finally, in December, employees and contractors at our Waterton sour gas complex passed the remarkable milestone of two million hours and five years without an LTI.

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

14     SHELL CANADA LIMITED PRESIDENT’S MESSAGE

In Shell Canada, sustainable development belongs firmly in the mainstream of business.

Sustainable Development in Action

The integration of economic, environmental and social considerations remains the umbrella under which the Company conducts all its business activities. In Shell Canada, sustainable development belongs firmly in the mainstream of business and delivers real benefits to the Company in many ways, not least economic.

While cost savings and other economic benefits are important, sustainable development is much broader than this. Society requires that companies conduct business in an environmentally and socially responsible manner. Our licence to operate increasingly depends on stakeholder support across society, ensuring that all Canadians benefit from our activities. Our licence to grow depends on using new ideas and new technology to reduce emissions and energy consumption, leaving a much smaller environmental footprint. The combination of energetic, innovative people and technological advances is the key to unlocking the door to the sustainable development of our present and future resources.

Shell Canada is investing in research and recruitment that will lead to new technology and new business solutions, and we value our association with various Canadian universities. We also value our relationship with Royal Dutch Shell plc, our majority shareholder, which provides access to Shell Group’s international research centres.

Shell Canada is also attracting a steady supply of well-educated technical and professional staff, but we will need many more to pursue our aggressive growth plans. The Company offers an employee value proposition that includes competitive pay and conditions, and opportunities for continuous learning and challenging work. I believe we are on the right track. For example, Mediacorp Canada Inc. placed Shell among Canada’s Top 100 Employers for the sixth year in a row. Also in 2005, Today’s Parent magazine named Shell Canada one of Canada’s Top 10 “family friendly” employers.

Shell employees and retirees responded to the leadership and hard work of our 2005 United Way campaign team and the total Shell contribution to the United Way campaigns across Canada was a record $5.2 million. This kind of generosity is part of what makes our Company special.

PRESIDENT’S MESSAGE SHELL CANADA LIMITED     15

I am proud of Shell Canada’s corporate governance standards and have confidence in the integrity of our financial reporting systems.

Corporate Governance and Compliance

The Company places the utmost importance on complying with all legal and regulatory requirements, responding promptly to required changes in reporting. We work hard to communicate sound financial and operational information to our shareholders. I am proud of Shell Canada’s corporate governance standards and have confidence in the integrity of our financial reporting systems.

Shell also continues to look for ways to improve and communicate, listening to suggestions from stakeholders and learning from others. For example, in 2005, the board of directors appointed an independent Lead Director to complement the role of the Chairman of the Meetings of the Board. In addition, the board approved two new committees to focus on pension administration and health, safety, environment and social responsibility, which are issues with increasingly detailed requirements. The board also approved an independence policy, which formalizes the existing practice of selecting only independent directors to serve on the board committees.

In 2006, we filed our fourth annual certification that Shell Canada is in compliance with Section 302 of the Sarbanes-Oxley Act and similar Canadian requirements.

Looking Forward

In mid-November, our board approved the largest capital investment program in Shell Canada’s history. The $2.7 billion program for 2006 (an increase of almost 60 per cent over 2005 actual capital spending) launched the Company on a growth path in all areas of the business. The potential exists to increase our total hydrocarbon production by more than 50 per cent by the end of the decade.

The 2006 investment plan will help us take advantage of the anticipated strong business outlook and continuing high commodity prices. E&P plans to invest half of its $1.0 billion total to maintain the level of natural gas production in our existing areas of operation in the Foothills and offshore Nova Scotia. The other half will support growth opportunities that include unconventional gas in Western Canada and the Mackenzie Gas Project in the Far North.

16     SHELL CANADA LIMITED PRESIDENT’S MESSAGE

I personally thank all of our employees, past and present.

The Oil Sands total investment program in 2006 is about $1.1 billion. A little over half of this will be directed to growth projects, including the first AOSP expansion. The remainder is earmarked for projects to improve profitability, optimize production and sustain operations. At the start of 2006, Oil Sands assumed responsibility for the Peace River in situ bitumen business, which used to be part of E&P. This is a logical step to ensure we optimize synergies across our heavy oil operations.

Oil Products will direct about 70 per cent of its $510 million planned expenditures to meet legislative requirements, primarily the commissioning of our ultra-low-sulphur diesel projects at Scotford and Montreal East refineries, and to maintain the integrity of our manufacturing and distribution supply infrastructures and marketing networks. Other investment capital will be directed to improving the profitability and competitive position of our downstream businesses.

Conclusion

Finally, I personally thank all of our employees, past and present, who have worked so hard to provide the Company with the solid financial and operational foundation from which to grow. I am privileged to be their colleague. Their skill and dedication turn our investments into successful, sustainable operations. Their enthusiasm and innovation make this company such a great place to work.

Clive Mather
President and Chief Executive Officer

March 10, 2006

PRESIDENT’S MESSAGE SHELL CANADA LIMITED     17

Growth

Profitability

Sustainable Development

MANAGEMENT’S DISCUSSION AND ANALYSIS

MARCH 10, 2006

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, cash flow from operations, unit cash operating cost and total unit 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 the inside front cover 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 and the United States Securities and Exchange Commission. 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). BOEs may be misleading, particularly if used in isolation. A conversion of six thousand cubic feet of natural gas to one barrel of oil, as used in this 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.

18     SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial Results

Shell Canada reported an outstanding year in 2005 with record earnings of $2,014 million, or $2.44 per common share. This represents a significant increase of 56.6 per cent from the previous record of $1,286 million or $1.56 per common share in 2004. In 2005, strong appreciation in the share price over the course of the year resulted in a $173 million charge to earnings related to the Company’s Long Term Incentive Plan (LTIP). However, this impact on earnings was more than offset by the use of non-capital losses available to the Company and proceeds from insurance settlements.

SELECTED ANNUAL FINANCIAL INFORMATION

Year ended December 31
($ millions except per share data)	2005		2004		2003
Earnings		2 014		1 286		810
Total revenues		14 394		11 288		9 117
Total assets		13 655		10 906		9 613
Long-term debt1		200		1		2
Per common share (dollars)2
Earnings — basic		2.44		1.56		0.98
Earnings — diluted		2.41		1.55		0.97
Cash dividends		0.367		0.313		0.273

1	The long-term debt includes the variable interest entity, which was consolidated in 2005. See Note 6 to the Consolidated Financial Statements.
2	Restated for June 2005 share split.

SUMMARY OF QUARTERLY RESULTS

(unaudited)	2005											2004
	Quarter									Total		Quarter											Total
($ millions except as noted)	1st		2nd		3rd			4th		Year		1st			2nd			3rd		4th			Year
EARNINGS
Revenues		3 005		3 390		3 956			4 043		14 394		2 514			2 640			3 058		3 076			11 288
Expenses		2 453		2 665		3 310			3 180		11 608		1 971			2 192			2 441		2 799			9 403
Earnings before income tax		552		725		646			863		2 786		543			448			617		277			1 885
Income tax		135		199		189			249		772		175			163			166		95			599
Earnings		417		526		457			614		2 014		368			285			451		182			1 286
SEGMENTED EARNINGS
Exploration & Production		131		114		157			263		665		156			91			129		73			449
Oil Sands		103		264		227			196		790		96			96			173		13			378
Oil Products		123		128		81			106		438		118			110			114		109			451
Corporate		60		20		(8	)		49		121		(2	)		(12	)		35		(13	)		8
Earnings		417		526		457			614		2 014		368			285			451		182			1 286
PER COMMON SHARE (dollars)1
Earnings — basic		0.51		0.64		0.55			0.74		2.44		0.44			0.35			0.55		0.22			1.56
Earnings — diluted		0.50		0.63		0.55			0.73		2.41		0.44			0.35			0.54		0.22			1.55
Dividend paid		0.084		0.083		0.090			0.110		0.367		0.074			0.073			0.083		0.083			0.313
Weighted average shares(millions)1		825		825		825			825		825		825			825			825		826			826
Dilutive securities (millions)1		10		8		11			10		9		6			6			6		7			6

¹   Restated for June 2005 share split.

MANAGEMENT’S DISCUSSION AND ANALYSIS SHELL CANADA LIMITED   19

The 2005 results delivered a strong return on average capital employed of 26.8 per cent.

The three major business units reported solid operational performances, capitalizing on the favourable economic conditions provided by high commodity prices and strong refining margins throughout the year. Earnings benefited in particular from a strong contribution by the Oil Sands business unit, record earnings from Exploration & Production (E&P) and record production overall. In the downstream business, Oil Products earnings fell slightly from the previous year’s record as increased costs more than offset the gains from strong refining margins and improved light oil yields. The Corporate sector reported positive earnings of $121 million related to the use of non-capital losses available to the Company.

Earnings for the fourth quarter of 2005 were $614 million, more than three times the $182 million for the corresponding quarter in 2004 as production improved, and commodity prices and refining margins remained strong through the last three months of the year. Fourth-quarter earnings included a favourable adjustment of $65 million pertaining to the use of non-capital losses from the acquisition of an affiliated company in 2004 and a $27 million charge related to the LTIP.

Fourth-quarter earnings reflected significant year-over-year improvements in E&P and Oil Sands, while Oil Products earnings for the fourth quarter were almost the same as the comparable period in 2004. Corporate reported a positive contribution to earnings of $49 million due to the use of non-capital losses.

The 2005 results delivered a strong return on average capital employed of 26.8 per cent. Cash flow from operations in 2005 was a record $3,056 million compared with $2,129 million the previous year.

In 2005, capital, exploration and predevelopment expenses reached a total of $1,715 million compared with $951 million in 2004. E&P capital expenditures in 2005 increased to $873 million from $451 million in 2004 mainly due to increased exploration and land acquisitions. In addition, two significant pipeline projects were completed to extend the life of existing gas plants and reduce future operating costs.

20   SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

Reserves

At the end of 2005, gross proved natural gas reserves totalled 1,592 billion cubic feet (bcf ) after production of 187 bcf, which compared with 1,595 bcf for 2004. The reserves additions included 184 bcf from extensions and discoveries and an additional nine bcf from an acquisition in the Burmis region of Alberta. The former included an additional 74 bcf for Tay River and a 52 bcf booking for the Company’s early investment position in basin-centred gas (BCG). These gains were partially offset by nine bcf of net downward technical and economic revisions. The 2005 production of natural gas liquids was 14 million barrels. However, positive technical and economic revisions limited the decrease in gross proved reserves to only seven million barrels.

In 2005, gross proved minable bitumen reserves increased to 808 million barrels from 621 million in 2004. Drilling activity resulted in the reclassification of about 222 million barrels to the proved from probable category, offset by 35 million barrels of minable bitumen production. Total gross proved and probable minable bitumen reserves decreased by the 35 million barrels produced to 936 million barrels at the end of 2005.

In 2005, the Company rebooked 28 million barrels of gross proved bitumen reserves at Peace River. The United States Securities and Exchange Commission reserves reporting rules and related guidance prescribes the use of constant year-end pricing and costs to determine proved reserves. Canadian bitumen prices were low at year-end 2004 due to wide heavy oil market differentials and high condensate prices. As a result, the Company debooked all its Peace River bitumen reserves in 2004.

* See cautionary note on page 18.

MANAGEMENT’S DISCUSSION AND ANALYSIS SHELL CANADA LIMITED   21

Shell Canada’s new development strategy for Peace River includes plans for a proposed expansion project. The 28 million barrels rebooked for 2005 is solely the reserves portion associated with existing wells and facilities and wells now being drilled. Engineering and regulatory work on the expansion will continue over the next two years before a final investment decision is made. Once that key project milestone is reached, the Company expects it will be able to book additional Peace River reserves.

A detailed explanation of Shell’s reserves position appears on pages 86 to 89.

Shareholder Return

At the annual and special meeting of shareholders held April 29, 2005, the Company’s shareholders approved a three-for-one share split, which took effect on the Toronto Stock Exchange June 21, 2005. Total shareholder return in 2005 was 59.3 per cent. In the fourth quarter, the Company’s quarterly dividend was $0.11 per common share compared with $0.083 in the same period of 2004 (adjusted for the share split). Dividends paid for the year totalled $0.37 per common share, up from $0.31 per share in 2004.

Business Environment

During 2005, energy prices in North America — including crude oil and natural gas — reached unprecedented levels. The main reason for the increase was the tightness of supply in both the global oil and North American natural gas markets. While world oil demand continued to grow in 2005, albeit at a slower rate than in 2004, crude supply increased only marginally and spare production capacity was at historically low levels. In the continental natural gas market, consumption also continued to grow, but supply remained flat despite record drilling activity in both the United States and Canada. The pressure on the price of crude oil and oil products intensified with the significant outage in both oil and gas production capacity following the hurricane season in the U.S. Gulf of Mexico.

Crude oil prices reached record levels in 2005 as world demand increased and supplies dwindled. Increased output by the Organization of Petroleum Exporting Countries in 2005 could not fully compensate for supply disruptions resulting from damage caused by hurricanes in the U.S. Gulf of Mexico, conflict in the Middle East and labour strikes in Venezuela. In ventories of refined petroleum products in the United States remained low. In addition, growing demand in China and India helped push world oil prices to a record $70 US per barrel. Prices at year-end were $61.06 US per barrel compared with $43.45 US at year-end 2004. In turn, crude oil prices influenced natural gas and natural gas liquids prices.

The rapid rise in crude oil prices, low inventories in North America and a tight balance between supply and demand resulted in strong refining margins throughout 2005. Overall demand in Canada for oil products remained generally strong in the first half of the year but weakened during the final six months. In late August and September, the effects of hurricanes Katrina and Rita dominated the market. Panic buying in Eastern Canada, based on pricing rumours, caused operational and logistical difficulties.

22   SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

Although the increased demand strained Shell’s capacity, requiring the use of product allocations on a number of occasions, the Company maintained customer supplies. High product prices in the marketplace depressed demand for premium gasoline and intense competition, particularly in Ontario, compressed retail marketing margins.

In 2005, the average natural gas price in Canada was $8.71 Cdn per thousand cubic feet (mcf) compared with $6.52 per mcf in 2004. At year-end, the price was $10.05 per mcf. The Company realized an average plant gate price of $8.23 per mcf, an increase from $6.49 per mcf in 2004.

Natural gas liquids include ethane, propane, butane and condensate. Ethane supplies remained low throughout 2005, while demand for use in petrochemical products increased and prices for 2005 were closely aligned with natural gas prices. Both propane and butane prices rose sharply in 2005, as demand for these products increased. Condensate, which is used to dilute bitumen and heavy oil and as refinery feedstock, traded at a premium to the $56.56 per barrel average price of crude oil.

Strong demand in North America and internationally kept sulphur prices robust throughout 2005. Shell Canada remains the leading sulphur exporter in Canada and was able to capitalize on favourable market conditions by remelting 308,000 tonnes from existing sulphur blocks to add to current production.

Health, Safety, Environment and Sustainable Development

Shell Canada believes that added business value from meeting the needs of its customers is best created by:

> achieving greater efficiency in the Company’s use of energy and natural resources;

> proactively managing health, safety and environmental risks;

> benefiting local communities; and

> engaging with its stakeholders.

Shell applies the principles of sustainable development to both existing operations and new business planning.

The Company has documented its environmental and social performance in 2005 in its fifteenth annual Sustainable Development Report, which will be available in April 2006 in print and online at www.shell.ca.

MANAGING HEALTH, SAFETY AND THE ENVIRONMENT

Shell’s attention to health and safety management gives priority to the safety and well-being of its employees, contractors and neighbours. The Company’s main safety performance measure (total recordable injury frequency for employees and contractors) in 2005 was 0.98 injuries for every 200,000 hours worked. While there has been an overall improvement in safety performance over the last five years, the increase to 0.98 in 2005 from 0.96 in 2004 is disappointing. Considerable effort continues to go into embedding health and safety into the hearts and minds of all employees and contractors to complement Shell’s extensive health, safety and environment standards and processes.

MANAGEMENT’S DISCUSSION AND ANALYSIS SHELL CANADA LIMITED   23

The Hon. Ralph Klein, Premier of Alberta (centre), and Shell Canada’s President and Chief Executive Officer Clive Mather (left) congratulate Mick Boiselle, a Shell Spirit of the Future Award winner.

Recognizing that personal injury statistics alone do not necessarily indicate how the Company is managing its major hazards, Shell uses other measures and initiatives. For example, each business unit investigates potentially serious incidents so that corrective action can be taken before an incident occurs. Management has also introduced “Learning from Incidents,” a process where key findings for actual or potential serious incidents are shared with appropriate groups within Shell. This new process is expected to help reduce human error and the number of equipment and procedural failures.

The Oil Products Ultra Low Sulphur Diesel Project at Montreal East Refinery and Scotford Refinery received the President’s Safety Award in 2005 in recognition of its outstanding safety performance and overall approach to safety management.

Shell Canada continues to make progress towards its voluntary greenhouse gas emissions reduction target of six per cent below 1990 levels by 2008 for its base business (E&P and Oil Products), mainly through energy efficiency improvements. In 2005, greenhouse gas emissions from the base business were 7.6 million tonnes, 217,000 tonnes less than in 2004 and 5.6 per cent below the 1990 level. Energy efficiency has improved by 12 per cent since 2000.

BENEFITING CANADIANS

In 2005, Shell Canada donated almost $8 million to not-for-profit organizations across the country to support environmental and educational programs as well as local communities where employees, retirees and marketing associates live and work.

Shell Canada matched funds raised by the employees and retirees of the Company and its affiliates for a record donation of $4.2 million to the United Way of Calgary and Area. The total amount was the largest single United Way contribution in Alberta’s history. It represented 10 per cent of the Calgary and Area 2005 campaign goal and, for the third consecutive year, was the largest ever United Way contribution from an organization headquartered in Western Canada. The Company matched employee and retiree donations for a total contribution of $5.2 million across Canada.

In 2005, Shell celebrated Alberta’s centennial with the “Shell Spirit of the Future Awards” supported by a media alliance. This province-wide program recognized 34 young Albertans, ages 16 to 25, who contribute to Alberta’s future through their educational and volunteer pursuits. Shell awarded each winner a $5,000 scholarship towards postsecondary education and donated $5,000 to each not-for-profit organization where they volunteer. The winners also appeared in their own television vignette, which was broadcast across Alberta in the fall.

In 2005, the Shell Environmental Fund (SEF) celebrated 15 years of providing grants to Canadians who want to improve or protect their local environment. Launched in 1990, the SEF had granted more than $11.5 million to over 3,900 environmental projects across the country by the end of 2005. Grants support projects such as habitat restoration, waste reduction and recycling programs, educational initiatives and beach cleanups.

24   SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

Shell Canada’s reputation as an employer of choice is critical for employee retention and recruitment.

ENGAGING WITH STAKEHOLDERS

Shell recognizes that stakeholder engagement is essential if the Company is to understand the environmental and social issues surrounding the operations and growth of its businesses. Shell representatives continue to work with governments, industry organizations, non-governmental organizations, First Nations and local communities throughout project planning and operations.

The Mackenzie Gas Project (MGP) is an example of the importance and challenges of dialogue and engagement. After halting project execution activities earlier in the year, the MGP proponents, including Shell Canada, agreed in November 2005 to begin the regulatory approval process in early 2006. The agreement to proceed was the result of patient negotiation between a variety of stakeholders. It was an important step forward for this large, multibillion-dollar project, which is expected to provide employment and business opportunities and new infrastructure to local, mostly Aboriginal communities.

PEOPLE

For the sixth consecutive year, Mediacorp Canada Inc. selected Shell Canada as one of Canada’s Top 100 Employers and one of Alberta’s Top 20 Employers. Shell Canada’s reputation as an employer of choice is critical for employee retention and recruitment, especially with the shortages in a number of skill areas now facing the oil and gas industry.

Given its growth initiatives in all business units, the Company considers recruiting and retaining new graduates and experienced employees crucial to its future success. To support these efforts, Shell has strengthened the competitiveness of its employment package for current and prospective employees. Shell’s employee value proposition rests on three balanced components:

> a strong, competitive compensation package that includes pay linked to results;

> careers that offer exciting job opportunities, and continuous learning and development; and

> a work environment that emphasizes valuing and promoting diversity, ethics and personal responsibility.

Shell has also introduced a comprehensive program to integrate new employees into the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS SHELL CANADA LIMITED   25

Shell Canada’s management and board of directors are committed to the highest standards of corporate governance.

Corporate Governance

Shell Canada’s management and board of directors are committed to the highest standards of corporate governance. The Company’s principles, policies and practices, which are reviewed regularly to enable Shell and its board to address evolving regulatory requirements and best practices, provide a solid framework for fulfilling this commitment.

A number of key developments occurred in 2005. The board appointed an independent Lead Director to complement the role of the Chairman of the Meetings of the Board and adopted a policy on director independence. The board has added two new committees, each comprising five independent directors, which will focus on the more detailed activities in two important areas: the Company’s systems and programs for the management of its health, safety, environment and social responsibilities, and pension administration, respectively. These areas were previously overseen by the full board.

The board and its committees of independent directors continue to meet separately from members of Shell management at each scheduled meeting. Independent directors also hold separate sessions without the presence of management and non-independent directors.

Internal Controls

Shell Canada promotes strong financial, business, disclosure and anti-fraud controls and procedures in its business processes and maintains high standards for integrity in financial reporting. Under Section 404 of the Sarbanes-Oxley Act (SOx), management must report on the effectiveness of internal controls over financial reporting. Shell believes it is well-positioned to file for year-end 2006, as will be required by the United States Securities and Exchange Commission.

The Company’s Chief Executive Officer and Chief Financial Officer have filed annual certifications for the last four years in compliance with SOx Section 302 and similar certifications required by Canadian regulation. These officers believe that Shell Canada’s disclosure controls and procedures operated effectively in each of these years and for the year ended December 31, 2005.

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 are largely related to the unprecedented growth opportunities and include major project execution; organizational capability; control framework for growth; material and equipment shortages; and community relations. The Company also monitors risks associated with commodity prices and operational reliability. Each business unit discusses the risks specific to its operations in its own section of this report.

26   SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

During 2005, the Company strengthened all elements of the employee value proposition to ensure competitiveness.

ORGANIZATIONAL CAPABILITY

Future growth will depend on the Company’s ability to attract, develop and retain key people, including both skilled trades people in project construction and employees for ongoing operations. Shell Canada has established recruitment targets for new graduates and experienced staff. During 2005, the Company strengthened all elements of the employee value proposition to ensure competitiveness. Shell also introduced a program to promote a comprehensive and consistent introduction to the Company’s policies and control framework for all new employees. Despite these initiatives, the Company is concerned about its ability to find sufficient people and skills in the current environment.

MAJOR PROJECT EXECUTION

The Company is pursuing a number of concurrent large-scale projects, which could be constrained by the ability to attract enough people, complete engineering and procure materials. Any or all of these constraints could increase costs and delay schedules. Mitigation measures include assembling experienced project teams who share best practices and lessons learned through project look-backs. Other measures include an integrated project management system with detailed front-end engineering and execution planning, dividing projects into more manageable phases to promote continuity of resources, developing efficient construction techniques and making strategic long-term alliances with key suppliers and contractors.

COMMODITY PRICES

Fluctuations in the price of crude oil, natural gas and petroleum products have a significant bearing on the Company’s financial results, as shown in the table below. Shell mitigates this risk by using conservative price premises for all capital projects and budgets. For its Oil Products business, the Company also uses limited hedging to reduce exposure to price swings. In general, Shell Canada does not hedge in light of its conservative premises and strong balance sheet.

2005 OPERATING EARNINGS SENSITIVITIES (after-tax annualized)1		Increase/(Decrease)
EXPLORATION & PRODUCTION
Natural Gas	10-cent US increase per million BTUs2(Henry Hub)		$	9		million
Condensate	$1 US increase per barrel (West Texas Intermediate)		$	3		million
Bitumen	$1 US increase per barrel (West Texas Intermediate)		$	2		million
Sulphur	$1 Cdn increase per tonne		$	2		million
Foothills natural gas production	Increase of 10 million cubic feet per day		$	10		million
OIL PRODUCTS
Light oil sales margin	1/4-cent Cdn increase per litre		$	25		million
Natural Gas	10-cent US increase per million BTUs2(Henry Hub)		$	(3	)	million
OIL SANDS
Crude Oil	$1 US increase per barrel (West Texas Intermediate)		$	28		million
Natural Gas	10-cent US increase per million BTUs2(Henry Hub)		$	(2	)	million
Equity Production	Increase of 1,000 barrels per day		$	13		million
SHELL CANADA EXCHANGE RATE	1-cent improvement in $Cdn vs. $US		$	(27	)	million

1	Sensitivities (eg: Henry Hub, West Texas Intermediate) are calculated independently and assume other market variables remain constant.
2	BTUs: British thermal units.

MANAGEMENT’S DISCUSSION AND ANALYSIS SHELL CANADA LIMITED   27

CONTROL FRAMEWORK FOR GROWTH

A robust control framework is critical to managing project timing and costs. Shell Canada has confidence in its present processes and continues to look for ways to strengthen its controls, improve its management information systems and enhance employee training.

MATERIAL AND EQUIPMENT

The increase in activity and competing projects within the oil and gas industry could make it more difficult to acquire critical goods and services, which would increase the lead times on orders, drive up costs and, potentially, disrupt project schedules. Shell monitors current market conditions and bottlenecks in the supply chain, and uses best practice procurement strategies. The Company also liaises with Royal Dutch Shell, leveraging its experience and buying power.

OPERATIONAL RELIABILITY

Operating interruptions at any of Shell’s operating facilities could adversely affect the Company’s financial results and its ability to meet its commitments to customers. Mitigation measures include regular maintenance programs, continuing asset integrity reviews, and the retention of highly trained and experienced personnel. The diverse nature and locations of Shell’s operating facilities reduce the risk of more than one facility experiencing interruptions at the same time.

COMMUNITY RELATIONS

Many of the Company’s planned projects depend on support from local communities, the loss of which could result in escalating demands, project delays and spiralling costs. To meet project objectives for Oil Sands expansion, Shell has negotiated a long-term benefits agreement between the Athabasca Tribal Council, the Alberta and federal governments, and others in the oil sands industry. For the Mackenzie Gas Project, Shell has undertaken to provide opportunities for local communities to participate in project planning by taking a proactive approach to engagement and maintaining a regular presence wherever Shell conducts its activities.

28   SHELL CANADA LIMITED MANAGEMENT’S DISCUSSION AND ANALYSIS

EXPLORATION & PRODUCTION (MD & A) SHELL CANADA LIMITED   29

EXPLORATION & PRODUCTION

In 2005, Exploration & Production (E&P) delivered record earnings of $665 million compared with $449 million in 2004.

This result was mainly due to strong commodity prices, with a contribution from increased volumes at Shell’s Peace River in situ bitumen complex and new production from basin-centred gas (BCG), which helped offset increased expenses and lower volumes due to natural field decline, plant turnarounds and flooding in the Foothills of Alberta. Earnings in 2005 reflected positive tax adjustments of $39 million and an insurance settlement of $12 million, offset by a charge of $50 million related to the Long Term Incentive Plan (LTIP).

During 2005, the Company’s E&P business acquired almost 200,000 net acres at Crown land sales in Alberta and British Columbia as well as a 20 per cent interest in the Orphan Basin offshore Canada’s east coast through a farm-in of eight exploration licences in March. Also in 2005, E&P hired almost 150 new employees to support its growing business.

The business unit’s return on average capital employed for 2005 was 37.2 per cent, up from 28.3 per cent in 2004.

E&P earnings in the fourth quarter of 2005 were $263 million, an increase of $190 million from $73 million for the corresponding period in 2004. Gains from strong commodity prices combined with lower exploration and lower LTIP charges more than made up for higher operating costs. A $32 million charge related to predevelopment expenses on the Mackenzie Gas Project reduced fourth-quarter results in 2004. LTIP charges were $8 million in the fourth quarter of 2005 compared with $24 million for the same period of 2004.

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

H. IAN KILGOUR

Senior Vice President, Exploration & Production

EXPLORATION & PRODUCTION HIGHLIGHTS

($ millions except as noted)	2005		2004		2003
Revenues		2 611		2 198		2 113
Earnings		665		449		619
Capital employed		2 052		1 523		1 648
Capital, exploration and predevelopment expenditures		873		451		385
Return on average capital employed (%)		37.2		28.3		37.3

Total production of natural gas in 2005 was 512 million cubic feet per day (mmcf/d) compared with 540 mmcf/d in 2004. Total natural gas production for the fourth quarter of 2005 was comparable to the same period of 2004, in spite of plant turnaround activities that extended into October. In creased fourth-quarter production from the Sable Offshore Energy Project (SOEP) along with new production from Tay River and BCG gas more than made up for natural field decline. As a result, gas production was higher at year-end 2005 than at year-end 2004.

Production of natural gas liquids fell in 2005 to 38,600 barrels per day (bbls/d) from 40,300 bbls/d in 2004 due to natural field decline in Shell’s liquids-rich Caroline field. Peace River’s infill program resulted in an increase in bitumen volumes to an average 8,900 bbls/d from 8,100 bbls/d.

Foothills

The Foothills business operates mainly in southern and central Alberta with four Shell-operated gas plants and a number of producing fields. E&P’s Foothills operations now include production in northeast British Columbia.

The Foothills business remains the largest contributor to profit in E&P, with 2005 sales gas production averaging 391 mmcf/d of natural gas, which accounts for 76 per cent of Shell’s total natural gas production. In addition, Foothills produced 21,100 bbls/d of natural gas liquids (ethane, propane and butane), 11,200 bbls/d of

EXPLORATION & PRODUCTION (MD&A) SHELL CANADA LIMITED   31

Foothills geophysicists David Haugseth (sitting), Cameron Luck and Carly Grimsen Seligman work together on the kind of seismic processing and interpretation that led to the discovery of Shell’s Tay River well.

condensate and 5,300 tonnes per day of sulphur. This compares with 2004 figures of 415 mmcf/d sales gas produced, 23,300 bbls/d natural gas liquids, 12,700 bbls/d condensate and 5,600 tonnes per day of sulphur. Although annualized volumes were lower than in 2004, the volume of Foothills sales gas produced at year-end was about two per cent higher than at the beginning of the year.

Shell has 75 per cent ownership in the Tay River well southwest of Rocky Mountain House in central Alberta, which was a major discovery in 2004. Tay River began production in May 2005 and initial results were encouraging. The installation of larger production tubing in October increased Tay River well production to a rate of 95 mmcf/d of raw gas at year-end, giving it the highest flow rate of any natural gas well in Canada. Two more wells are planned for 2006, one to delineate the original discovery and the other to test a new structure.

The 2005 Foothills development program totalled $292 million and achieved significant progress in optimizing existing infrastructure. A pipeline connecting the Moose Mountain natural gas field to Shell’s Jumping Pound gas plant was completed in May and construction of Jumping Pound’s enhanced sulphur recovery unit was completed in October. This project incorporated new technology to recover more sulphur from natural gas, which will reduce sulphur dioxide emissions to the environment. The pipeline connecting the Limestone field to Shell’s Caroline gas plant started flowing in July. This pipeline will also connect to the Panther field in the second quarter of 2006. These projects will help maintain significant long-term volumes of raw gas to the gas plants and provide additional processing options for the fields.

The planning phase of the Waterton gas plant optimization project continued in 2005 and a decision on whether or not to proceed will be made in 2006. The project team is evaluating the reconfiguration of the facility to improve cost structure and maximize utilization.

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

In August 2005, Foothills acquired all the assets of Hunt Oil of Canada Inc. in the Waterton area, which included three producing wells in the Burmis field and a gathering system linked to Shell’s Waterton plant.

The joint venture drilling program continued in the Panther area and the other participant has now earned the right to 50 per cent of all future investments. Three new Panther wells were tied in during 2005 and two additional wells were drilling at year-end. Further drilling is planned for future years.

In 2005, Foothills continued to explore in both northeast British Columbia and Alberta with a $97 million exploration program, up from $61 million in 2004. These expenditures included significant land purchases and participation in six exploration wells. Four of these wells did not prove commercially viable and two were still in progress at year-end. Foothills plans similar exploration expenditures in 2006.

Unconventional Gas

The Unconventional Gas business grew significantly throughout 2005, with capital investments of $306 million on land acquisitions, seismic, drilling operations and tie-in of new wells. Unconventional Gas focuses on basin-centred gas and coal bed methane (CBM) opportunities. The BCG team explores reservoirs with low permeability. The CBM group explores for gas found in coal deposits.

BASIN-CENTRED GAS

The Company’s BCG activities are focused in the Chinook Ridge region of the Deep Basin area of Western Canada straddling the Alberta/British Columbia border. Initial results of the drilling program have been encouraging. At year-end, five wells were either drilling or being tested and six wells were producing. A lack of processing infrastructure limited production to an average annual rate of 2.4 mmcf/d (17 mmcf/d in December). Presently, there is insufficient processing capacity in the Chinook Ridge area due to the high level of industry activity in the region. In response, the Company is evaluating possible infrastructure solutions, including building a Shell-owned natural gas plant. The drilling program will be expanded in 2006. In 2005, Shell more than tripled its existing BCG land position to provide a framework for future growth.

COAL BED METHANE

In 2005, the CBM team focused on three areas: Sparwood, southeast British Columbia; Ram River, Foothills of Alberta; and Klappan, northwest British Columbia. During 2005, Shell conducted test well programs at Sparwood and Ram River. The results were not sufficiently encouraging to warrant further exploration in these areas. Shell has postponed the start of the next phase of its test well program in Klappan to allow time for further public consultation with local communities. At present, there are no estimated reserves or commercial production related to CBM.

EXPLORATION & PRODUCTION (MD & A) SHELL CANADA LIMITED   33

Frontier

SABLE OFFSHORE ENERGY PROJECT

Shell Canada’s SOEP interests in the shallow water offshore Nova Scotia continue to provide significant cash and earnings. Additional development of the South Venture field in 2005 helped offset natural production decline from other SOEP fields. Production of sales gas averaged 119 mmcf/d (Shell share) in 2005 compared with 125 mmcf/d in 2004. Production from the South Venture field also helped increase SOEP condensate volumes, which averaged 4,100 bbls/d (Shell share) compared with 2,500 bbls/d in 2004.

The second and third wells in the South Venture field came on stream in the second quarter of 2005. An additional infill well in the Venture field was drilled in the second half of the year and was producing by year-end. Drilling began on the third well in the Alma field in February 2006 and first production is expected by mid-year.

Construction of the field compression project continued in 2005, with startup expected late 2006. This project will help offset natural field decline and increase ultimate recovery from SOEP.

OTHER EAST COAST INTERESTS

In addition to SOEP, Shell holds interests in the shallow water Sable Basin and in the deep water offshore Nova Scotia. Although Shell continues to evaluate opportunities, there are no plans for more exploration activities in these areas.

In 2005, Shell farmed into a 20 per cent interest in eight exploration licences in the Orphan Basin located in the deep water region offshore Newfoundland and Labrador. A three-dimensional seismic program took place in 2005 and drilling of the first exploratory well in the basin is planned for 2006.

Kim Johnson, Environment and External Affairs Coordinator for the Frontier, Northern Development group (sitting), and Paul Davies, the group’s Regulatory, Integration and Regulatory Approvals Coordinator, consult with Mary Henderson, Senior Counsel for E&P, as they prepare for public hearings on the Mackenzie Gas Project.

NORTHERN CANADA

In November 2005, the proponents of the Mackenzie Gas Project, including Shell Canada, advised the National Energy Board that they were ready to proceed to public hearings on the proposed Mackenzie Valley Pipeline project. The decision was taken following assurances by stakeholders that several key issues could be resolved. The issues included clarification of the regulatory review process, negotiating benefits and access agreements with northern Aboriginal groups, and developing the necessary fiscal framework for the project. The proponents had halted project execution in April 2005 due to insufficient progress in these key areas.

Pre-hearing planning meetings with northern communities started in December 2005 and the regulatory process is expected to continue throughout 2006. A final decision to proceed with the project is subject to obtaining the necessary regulatory approvals and assessing any conditions attached to those approvals. It will also depend on a number of other factors, such as the final terms of benefits and access agreements, agreement on fiscal matters, natural gas markets, project costs and the level of shipping commitments on the pipeline.

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

Tracy Fummerton and Ray Carlyon of Shell’s Jumping Pound gas plant inspect construction progress on the enhanced sulphur recovery unit, which will reduce sulphur dioxide emissions.

Peace River

In 2005, bitumen production from Peace River averaged 8,900 bbls/d compared with 8,100 bbls/d in 2004. The increase was attributable to seven infill wells that came on stream during the year. In addition, 32 wells (two pads) are drilling and expected to come on stream in the second half of 2006. Shell expects these wells to increase production to the plant’s current capacity of 12,000 bbls/d.

Effective January 1, 2006, the Peace River business was transferred to the Oil Sands business unit and future plans are discussed in that section of this report. Synergies between the two are expected to provide future opportunities for reduced costs and larger-scale heavy oil integration.

Health, Safety, Environment and Sustainable Development

In 2005, E&P reported 1.29 recordable injuries for every 200,000 hours worked compared with a rate of 1.16 in 2004. Although this performance was strong given the number and scope of major projects that were completed in 2005, there are still opportunities for improvement. The investigation of circumstances surrounding incidents with a high potential for injury and near misses provides a wealth of information. Sharing what is learned within E&P and throughout the Company will drive improvement towards the goal of zero incidents.

A key commitment by E&P is to reduce the environmental impacts of its operations and development activities through initiatives such as enhanced sulphur recovery at the Jumping Pound gas plant and the drive for energy efficiencies through field projects.

E&P’s commitment to sustainable development includes public consultation efforts that regularly exceed regulatory requirements. The business works with governments, non-governmental organizations, industry associations and local communities as well as individual landowners and community residents with respect to new projects and ongoing operations. One goal is to understand their concerns and negotiate mutually acceptable solutions to conflicting needs. Shell often takes a leadership role in supporting regional, multi-stakeholder synergy groups and looks for ways to reduce the potential impact of E&P activities while creating opportunities for local benefit.

All E&P operating sites are registered to a global ISO 14001 standard of environmental management, which requires demonstrated compliance with environmental legislation and continuous improvement in environmental performance. The certificate was reregistered in 2005.

EXPLORATION & PRODUCTION (MD & A) SHELL CANADA LIMITED   35

With oil and gas prices at record levels, the industry is experiencing increased growth in drilling and exploration activities.

Looking Forward

E&P’s strategy in 2006 is to capitalize on current projects to increase Shell’s natural gas production volumes and reserves while maintaining a solid operational base. In E&P’s largest-ever capital investment program, key goals include:

>	growing production volumes and enhancing future recovery in the Foothills area of Western Canada;
>	completing the SOEP field compression project to help sustain production in the current fields;
>	pursuing unconventional gas opportunities with a primary focus on growing basin-centred gas production. This includes evaluating and drilling the new land parcels acquired in 2005 and building necessary infrastructure for future processing; and
>	completing the regulatory hearings on the Mackenzie Gas Project.

2006 Capital and Exploration Investment

E&P’s planned investment program for 2006, which now excludes Peace River, is $1,010 million, of which $308 million will support exploration activities and $655 million is for development. The capital, exploration and predevelopment expenditures totalled $873 million in 2005, including $75 million for Peace River. About 50 per cent of the E&P program will sustain natural gas production levels in the Foothills area of Western Canada and at SOEP. The balance of the program is mainly focused on growth opportunities, including $404 million for unconventional gas and about $47 million for predevelopment expenses to advance the Mackenzie Gas Project regulatory process.

Risk Management

ORGANIZATIONAL CAPABILITY

With oil and gas prices at record levels, the industry is experiencing increased growth in drilling and exploration activities. This, in turn, has resulted in an industry-wide shortage of skilled people, specifically for technical and project management roles, which will make it challenging to implement E&P’s aggressive 2006 investment plan. The E&P business is proactively addressing issues of recruitment, compensation and retention.

PROCESSING CAPACITY FOR FUTURE DEVELOPMENT

The Company does not have sufficient infrastructure to support E&P’s activities as they expand north into Alberta and west into British Columbia. Gaining access to third party gathering systems and processing capacity remains difficult. Shell is actively pursuing options to ensure reliable infrastructure alternatives to meet growing capacity into the future.

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

OIL SANDS (MD & A) SHELL CANADA LIMITED   37

OIL SANDS

In its second full year of integrated operations, Oil Sands reported record earnings of $790 million compared with $378 million in 2004 due to higher volumes and prices.

This represented 39 per cent of the Company’s overall earnings, a significant contribution from this relatively new business. The earnings increase also reflected higher proceeds from insurance settlements in 2005, offset by higher Long Term Incentive Plan (LTIP) charges and smaller positive tax adjustments.

The 2005 earnings included $82 million related to the final insurance settlement for the January 2003 fire at the Muskeg River Mine. Earnings also included a charge of $29 million related to the LTIP. Revenues totalled $3,148 million, an increase of 51.9 per cent over $2,072 million in 2004. Oil Sands generated $1,388 million of cash flow from operations in 2005 compared with $686 million in 2004. Capital expenditures totalled $343 million in 2005.

Oil Sands earnings in the fourth quarter of 2005 were $196 million, which was a significant increase over the $13 million reported for the corresponding period in 2004 when planned and unplanned maintenance activities disrupted operations. The comparative improvement between the fourth quarter 2005 and the fourth quarter 2004 was due to the operational disruptions in 2004 and increased production, higher prices and lower unit costs in 2005. Fourth-quarter 2005 earnings included a $5 million after-tax charge related to the LTIP compared with $11 million for LTIP in the final quarter of 2004.

38     SHELL CANADA LIMITED OIL SANDS (MD & A)

BRIAN E. STRAUB

Senior Vice President, Oil Sands

OIL SANDS HIGHLIGHTS

($ millions except as noted)	2005	2004	2003
Revenues	3 148	2 072	906
Earnings	790	378	(142	)
Capital employed	2 519	2 860	3 092
Capital expenditures	343	179	123
Return on average capital employed (%)	29.4	12.7	(4.4	)

In 2005, high crude oil prices had a positive effect on the Oil Sands business as Shell Canada realized an average selling price of $57.55 per barrel on sales of 50 million barrels including blended stock. The differential between the price realized and the price of Edmonton light crude remained wide due to continued high market differentials for heavy oil in a high commodity price environment.

Unit cash operating costs in 2005 were $23.16 per barrel, slightly lower than the $23.32 per barrel in 2004. Exceptionally high prices for natural gas and increased costs for labour and materials were major factors affecting unit costs.

Operations

Both the Muskeg River Mine and the Scotford Upgrader reported strong operational performances in 2005.

MUSKEG RIVER MINE

In 2005, the main focus at the mine was operational excellence. All areas of operations at Muskeg River Mine concentrated on achieving excellence in mine reliability, energy use, costs and safety, which resulted in consistent production and improved reliability. The average total bitumen production for the year was 159,900 barrels per day (bbls/d), which was above the design rate of 155,000 bbls/d and compared with 135,500 bbls/d in 2004. The mine achieved record production in 2005, producing 35 million barrels of bitumen (Shell share) compared with 30 million barrels in 2004.

OIL SANDS (MD & A) SHELL CANADA LIMITED   39

In late February 2006, a tear in the conveyor belt that carries ore from the crushers in the mine to the bitumen extraction plant reduced operations to a single train at both the mine and the upgrader. Pre-installation work to replace the belt began immediately. Initial expectations were that installation of the new conveyor belt will require a complete shutdown of the mine in late March and is expected to take up to two weeks.

The Company’s share of bitumen production in the fourth quarter of 2005 averaged 106,800 bbls/d compared with 65,900 bbls/d in the corresponding quarter of 2004 when operations were restricted to a single train. Total bitumen production for the Athabasca Oil Sands Project (AOSP) reached a new record in the fourth quarter of 2005, averaging 178,000 bbls/d.

Jean-Luc Gagné, froth treatment Operations Manager at the Muskeg River Mine, stands in front of the solvent recovery unit used in the froth treatment process.

SCOTFORD UPGRADER

The Scotford Upgrader’s reliability improved significantly in 2005, largely due to the focus on operations and enhanced integration between the mine and the upgrader. Unplanned maintenance in 2004 continued to affect production in the first quarter of 2005. Then, in mid-March 2005, a valve failure in Train 1 and a temperature variance in the exterior wall of one of the residue hydrocrackers forced a shutdown of one train at the upgrader. After resumption of full operations in early April, average production at the upgrader consistently exceeded design capacity. Reliability improvements overall resulted in higher production at the upgrader, including a new production record of 184,100 bbls/d in November 2005. In September 2005, production was cut back to accommodate the reduced availability of third party hydrogen to the upgrader. This cutback, in turn, allowed minor planned maintenance at both the Scotford hydrogen plant and the Muskeg River Mine cogeneration facilities. A planned maintenance shutdown of one train at the Scotford Upgrader in the third quarter of 2005 was deferred until 2006 when the upgrader will undergo its first major planned turnaround.

Effective January 1, 2006, Shell Canada’s Peace River in situ bitumen business became part of Oil Sands and future reporting will include Peace River.

Growth

Oil Sands operating performance in 2005 demonstrated that Shell Canada has a solid, reliable base business and proven technology from which to expand this business. The Company estimates it has more than 6.5 billion barrels of recoverable bitumen in its Athabasca leases, excluding new leases acquired in 2005, which are yet to be fully assessed. These resources support the Company’s long-term plans to increase AOSP total production to more than 500,000 bbls/d. To achieve this goal, Oil Sands will concentrate on continued operational excellence, production optimization and debottlenecking of existing facilities, and profitable expansion using a continuous construction strategy. Continuous construction would expand production in a series of “building blocks,” each of approximately 100,000 bbls/d.

40   SHELL CANADA LIMITED OIL SANDS (MD & A)

In April 2005, Shell Canada filed regulatory applications to increase production capacity at both the Muskeg River Mine and Scotford Upgrader. Regulatory approval is expected in 2006. If granted, this approval combined with the previous approval for Jackpine Mine would enable Shell Canada to advance mining developments on all of Lease 13 and Lease 90.

The scope of the first AOSP expansion includes construction of common infrastructure such as pipelines and utility systems, which will be sized to support the long-term production goal of more than 500,000 bbls/d. Front-end engineering is on track and the Company has selected engineering contractors for both the mine and upgrader expansion projects.

Jessica Norgaard, Senior Process Technologist at Shell Canada’s Calgary Research Centre, stands in the Dean Stark Laboratory where a solvent extraction procedure determines the amount of bitumen and water in, for example, an oil sands core sample.

The final investment decision for the first AOSP expansion (mine and upgrader) is expected in 2006. Construction at both facilities is expected to start in the second half of 2006 with completion targeted for late 2009. Front-end engineering work on future Oil Sands expansions has also begun, including conceptual design, with subsequent engineering work to progress in 2006. Gasification facilities associated with additional upgrading are also being evaluated as part of this front-end development work.

With the strategic decision to pre-build infrastructure for future expansions, Shell Canada has taken an important step toward its goal of more than 500,000 bbls/d of total bitumen production at the AOSP. As part of its focus on long-term growth, Shell acquired seven additional Athabasca oil sands leases in Crown land sales during 2005. Although still under evaluation, this land offers potential future expansion beyond 500,000 bbls/d. The other joint venture parties in the initial Muskeg River Mine development have the option to participate in the future development of Shell’s other existing Athabasca oil sands leases. Shell Canada, in turn, has the option to participate in leases purchased by the other joint venture parties.

Expansion of the Peace River operation is in the front-end engineering phase and filing of the regulatory application is expected in 2006. Shell anticipates that the Carmon Creek project, which is the first phase of expansion, could increase total bitumen production to 30,000 bbls/d. The final investment decision on Carmon Creek is planned for 2007, with expected production startup in 2009. Shell Canada’s current Peace River leases, which are estimated to contain about seven billion barrels of bitumen in place, have the potential to support development in the order of 100,000 bbls/d.

OIL SANDS (MD & A) SHELL CANADA LIMITED    41

Health, Safety, Environment and Sustainable Development

Oil Sands continued its focus on safety performance, maintaining an emphasis on individual responsibility for the task at hand. As a result, the business recorded a lost-time injury frequency rate of 0.4 per 200,000 hours worked. Muskeg River Mine achieved four million hours without a lost-time incident, while the Scotford Upgrader reported two million hours without a lost-time incident in 2005. Oil Sands total recordable injury frequency rate was 0.96.

The AOSP continues to integrate sustainable development into the life cycle of the project, from design and operations through reclamation.

J.J. (Janet) Zazubek, an environment co-op student who worked at the Muskeg River Mine for part of 2005, holds a large wooden raptor designed to scare birds away from the mine site.

Oil Sands is investigating technologies to further reduce carbon dioxide (CO₂) emissions from its operations. In addition, the AOSP has undertaken several CO₂ capture and sequestration studies to evaluate cost-effective solutions to manage CO₂ emissions.

By expanding its tree-planting program to include the Fort McMurray region in 2005, the AOSP is making progress toward its emissions reduction target. In partnership with Tree Canada Foundation, approximately 12,000 white spruce and 4,000 aspen trees were planted in June 2005. It is estimated that, over their 20-year life, these trees will remove more than 4,000 tonnes of CO₂ from the atmosphere.

Shell Canada continues to engage its nearest neighbours to help identify new opportunities to improve its environmental performance. In 2005, the Company began a series of initiatives to enhance the participation of local communities in its monitoring activities. This has led to the development of an education program for Aboriginal youth where they can acquire the technical environmental skills that would enable them to participate fully in community-based monitoring programs.

The AOSP continues to support the communities where it operates, doing business with local and Aboriginal companies in the Regional Municipality of Wood Buffalo and Strathcona County. As well, the AOSP continues to make community investments that enhance and support community health and wellness, education and capacity building.

42   SHELL CANADA LIMITED OIL SANDS (MD & A)

Oil Sands strives to be best in class operationally and to grow the business.

Looking Forward

Oil Sands strives to be best in class operationally and to grow the business. Key goals towards delivering these objectives are:

>	maintaining production from the existing AOSP operations through continued improvements in reliability;
>	reducing AOSP unit operating costs through increased production and improved efficiency;
>	advancing AOSP production optimization and debottlenecking activities and expansion opportunities;
>	continuing to engage with stakeholders proactively and deliver on commitments made to them; and
>	completing additional in situ wells at Peace River to fill the current plant capacity of 12,000 bbls/d while pursuing front-end engineering for the proposed expansion to 30,000 bbls/d.

Capital Investment

Oil Sands planned investment program for 2006 totals $1,120 million compared with $343 million of actual expenditures in 2005. The 2006 program includes $125 million for predevelopment expenses related to future growth projects in Athabasca and Peace River. Proposed investments include $385 million for profitability projects, debottlenecking and production optimization as well as sustaining capital. Capital spending on growth initiatives, including the 100,000 bbls/d AOSP expansion project, will be about $495 million. The 2006 program also provides capital spending of some $115 million at Peace River, mainly for completion of additional wells.

OIL SANDS (MD & A) SHELL CANADA LIMITED    43

The Company is dedicating resources to develop and maintain operational skills.

Risk Management

MINE AND UPGRADER RELIABILITY

To minimize the risks associated with plant reliability, Oil Sands will continue to focus on consistently producing at design capacity (155,000 bbls/d) and optimizing facilities to increase production beyond this level. The Company is dedicating resources to develop and maintain operational skills, focusing on technical specialists at the Muskeg River Mine and the Scotford Upgrader to achieve operational improvements. Oil Sands will continue to monitor and improve reliability and efficiency in its operations.

LABOUR AVAILABILITY

With the large number of oil sands projects across Alberta, the ability to attract, develop and retain key technical and project management skills and experienced craft labour to meet Shell’s growth objectives presents a major challenge. Furthermore, the level of experience of new staff may lead to reduced labour productivity. Shell’s strategy to mitigate these risks is to continue to establish and deliver on recruitment targets for graduate and experienced staff, to implement comprehensive training and development programs, and to work closely with key contractors in support of their employee development activities. Shell’s attraction and recruitment program includes, where necessary, international recruitment for skills that are in demand but not readily available in Canada.

44   SHELL CANADA LIMITED OIL SANDS (MD & A)

OIL PRODUCTS MANAGEMENT’S DISCUSSION & ANALYSIS

OIL PRODUCTS (MD & A) SHELL CANADA LIMITED    45

OIL PRODUCTS

In 2005, Oil Products annual earnings were $438 million, down slightly from record earnings of $451 million in 2004.

Strong refining margins and improved refinery light oil yields could not fully compensate for lower refinery utilization and higher expenses. The increase in expenses resulted from higher refinery maintenance costs, increased costs for purchased product and higher Long Term Incentive Plan (LTIP) charges. Expenses in 2004 also included a charge relating to a provision for the AIR MILES^® reward miles program. Planned maintenance work at the Scotford Refinery and unplanned maintenance at the Montreal East Refinery (MER) resulted in reduced utilization during the second half of the year. High spot prices for purchased products compounded the negative effect of these maintenance activities. Several times during the year, hurricane activity led to supply disruptions and fuel price volatility in North America. However, Shell was able to maintain a reliable supply to customers at competitive prices throughout.

Oil Products earnings in the fourth quarter were $106 million compared with $109 million for the same period in 2004 due to stronger refining and marketing margins. Unfortunately, lower prices for benzene, lower refinery utilization and higher expenses reduced earnings. LTIP charges of $6 million in the fourth quarter of 2005, compared with $30 million in 2004, offset higher maintenance and insurance costs, project - related expenses and commodity price-related costs. A negative tax adjustment of $8 million further reduced fourth-quarter earnings in 2005.

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

46   SHELL CANADA LIMITED OIL PRODUCTS (MD & A)

DAVID M. WESTON

Senior Vice President, Oil Products

OIL PRODUCTS HIGHLIGHTS

($ millions except as noted)	2005	2004	2003
Revenues	10 779	8 535	6 855
Earnings	438	451	344
Capital employed	2 280	2 130	2 113
Capital expenditures	484	313	194
Return on average capital employed (%)	19.9	21.3	17.2

Capital expenditures in 2005 were $484 million compared with $313 million in 2004. A major portion of the total investment was for construction of the ultra-low-sulphur diesel projects at Shell’s Montreal East and Scotford refineries. These projects involved construction of new diesel hydrotreater units that will reduce the amount of sulphur in on-road diesel to a maximum of 15 parts per million (ppm) from the present maximum of 500 ppm. This will allow Shell Canada to meet the new federal specifications for ultra-low-sulphur diesel, which come into effect mid-2006.

In 2005, Oil Products remained competitive in terms of unit costs, unit profitability and return on average capital employed (ROACE). Oil Products ROACE was 19.9 per cent compared with 21.3 per cent the previous year.

The continued focus for the business is to deliver quality products and services safely and reliably to customers using value propositions targeted to their specific needs. Equally important is the safe and efficient operation of Shell’s three refineries and achieving high, reliable throughput supported by secured sales through branded marketing channels.

OIL PRODUCTS (MD & A) SHELL CANADA LIMITED   47

Construction of the new ultra-low-sulphur diesel unit at Shell’s Montreal East Refinery was completed in the fourth quarter of 2005.

Manufacturing and Supply

In 2005, Shell Canada’s refineries produced record light oil volumes for the second consecutive year by leveraging the improvements from capital investments in 2004 and 2005. The refineries achieved this record performance in spite of major planned turnarounds at Sarnia Refinery in the spring and at Scotford Refinery in the fall. Unplanned maintenance work at MER in the third and fourth quarters resulted in reduced throughputs and lower light oil yields.

Construction of the ultra-low-sulphur diesel projects at the Montreal East and Scotford refineries continued in 2005. These projects were completed in 2005 and commissioned early in 2006. Feedstock was introduced into both units in February. Work on a third party distillate hydrotreater in Sarnia, which will process distillate from Shell’s Sarnia Refinery into ultra-low-sulphur diesel, is underway and completion is expected in the second quarter of 2006. A hydrogen plant is under construction at Shell’s Sarnia Refinery, also with completion expected in the second quarter of 2006. The plant will supply hydrogen to the Sarnia Refinery and to the third party facility.

As a result of a tear in the conveyor belt at the Muskeg River Mine in late February 2006 and the reduction of operations at the mine and the Scotford Upgrader to one train, Scotford Refinery was also running at reduced rates. However, the Company did not anticipate any difficulty in keeping customers supplied.

Retail

The retail gasoline market remained highly competitive and margins were generally compressed throughout 2005. Price volatility in the Greater Toronto and Greater Vancouver areas put even more pressure on margins in these two largest Canadian markets. The high price environment also increased pressure on operating costs, in particular variable and pump-price driven costs such as credit card service fees and loyalty awards. Shell maintained retail market share during the year at an average 17 per cent.

48   SHELL CANADA LIMITED OIL PRODUCTS (M D & A)

Sheri Snaychuk, Analytical Team Leader at the Calgary Research Centre, is seen here working in the distillation test area, which provides technical support to a number of businesses, including Oil Products.

Customer Focus

In 2005, the Retail business launched a brand awareness advertising campaign to leverage the Shell Group’s worldwide expertise in fuels, technology and innovation. Starting in May, national advertising featured an employee of Shell Global Solutions International B.V. explaining how the Shell Group’s relationship with Ferrari serves Shell customers and a clean environment. In June, Shell Canada celebrated the launch of V-Power™ gasoline, Shell’s unique premium-grade gasoline. The launch was successful, leading to strong premium fuel sales despite declining demand in an environment of rising prices. AIR MILES^® reward miles remained a mainstay of the Shell customer value proposition. In spite of the introduction of other loyalty programs into the industry, the AIR MILES^® reward miles program continues to build customer loyalty for Shell.

Operational Excellence

In 2005, the Retail business also focused on three major initiatives to serve Shell’s customers better by improving its processes. First was the Ready for Business program, which was originally introduced in 2004 to create and sustain a culture of operational excellence and help provide a consistently positive customer experience. The second was a new point-of-sale system, which will play a crucial role in improving operational effectiveness to enable Retail to deliver and execute consistently high-quality marketing programs and meet the evolving needs of Shell customers. The third is a new automated fuels-pricing system that will allow the business to respond more effectively to the increasingly competitive and volatile pricing environments, and continue to offer competitive prices. Both new systems are expected to become fully operational in 2006.

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

OIL PRODUCTS (M D & A) SHELL CANADA LIMITED   49

Network

Key goals for 2005 were improvement in the efficiency of the Company’s network of Shell-branded retail sites and increased investment in the major markets, with an emphasis on the Greater Toronto area. The program included building large new-to-industry sites, redeveloping existing sites and closing underperforming sites. During 2005, Shell opened eight new Shell-branded retail sites across the country while completing 11 full-scale redevelopments at existing Shell-branded stations and acquiring three existing retail sites. At year-end, there were 1,681 Shell-branded retail sites compared with 1,762 in 2004. Of the total number, Shell directly operates 760 sites. The average throughput of Shell-operated sites increased to 4.13 million litres in 2005 from 4.10 million litres in 2004.

Commercial

The Commercial business sells branded fuel and lubricants to the aviation, agricultural, industrial, transportation and home-heat sectors, and private-label lubricants to a variety of retailers and commercial distributors. The 2005 business environment was particularly challenging as high crude oil and refined product prices compressed margins in most of these commercial sectors. Shell worked closely with key customers, ensuring minimum inventories were on hand or alternatives available to mitigate the effects of industry-wide supply shortages, which nevertheless affected customers to varying degrees.

ROAD TRANSPORT

In June, Shell Canada Products and Flying J Canada Inc. opened a Flying J facility in Sherwood Park, Alberta, which offers highway hospitality services to long-distance truck drivers, recreational vehicle users and local customers. It is the first Flying J site in Canada to offer Shell-branded gasoline to its customers. Construction will begin soon on a second site in Calgary, Alberta, with a planned opening in late 2006.

Increasingly, customers — especially long-haul trucking customers — consider continental North America to be a single market. The Fleet Processing (FP) Solutions card launched in 2004 was one response to this change. In 2005, the Commercial business introduced the Triton card for retail and local fleet customers. The Triton card includes a web-based tool that allows customers to manage their own card portfolio using the Internet.

Russell Schoeppe, a Shell Territory Manager, visits the first Flying J site in Canada, which sells Shell-branded gasoline to customers.

DISTRIBUTION AND LUBRICANTS SUPPLY

Lubricants blending and packaging volumes at Shell’s Brockville plant continued to grow in 2005 and the facility produced record volumes for the fifth consecutive year. Growth came mainly from increases in domestic-branded sales and branded export sales, and private-label product sales that Shell manufactures and packages for third parties.

50   SHELL CANADA LIMITED OIL PRODUCTS (M D & A)

The Company invests in technology that helps meet customer demands.

In 2005, Shell Canada Products entered an agreement with Royal Dutch Shell’s global aviation business to manufacture aviation piston oil and grease at the Brockville and Calgary Lubricants and Grease plants. Work started on a debottlenecking project at the Brockville plant to increase the rail offloading, storage capacity and production blending capabilities. Similar capacity expansion work was completed at the Calgary Lubricants and Grease Plant in 2005.

The U.S. Gulf Coast hurricanes in 2005 severely affected Shell’s lubricants supply business, which buys base oils and additives from suppliers in that area. The hurricanes caused the closure of these facilities, resulting in supply shortages. Consequently, Shell had to restrict its sales of a number of lubricant products despite its efforts to minimize the impact of product shortages on its customers.

In 2005, the Oil Products business continued the implementation of quality assurance processes throughout the entire supply chain.

E-BUSINESS

Oil Products is committed to improving the ease and efficiency with which customers can do business with Shell. The Company invests in technology that helps meet customer demands using cost-competitive, automated and standardized processes. To improve service options and reduce costs, Oil Products will continue to automate the administrative processes with its third party alliances, update or replace systems and invest in technology that offers customers self-serve options.

Health, Safety, Environment and Sustainable Development

Oil Products reported a combined employee and contractor lost-time injury frequency of 0.19 per 200,000 hours worked compared with 0.13 in 2004. The combined total recordable injury frequency was 1.0 per 200,000 hours worked compared with 1.07 in 2004.

In 2005, the downstream business strengthened its risk and incident management processes.

The MER pioneered a health, safety and environment (HSE) cultural assessment process, which provides the ability to determine the state of HSE awareness and a range of tools to help address areas of weakness.

Oil Products met its 2005 targets for reductions in energy use in manufacturing and is on track to meet longer-term greenhouse gas reduction targets.

In 2005, the Brockville Blending and Packaging Plant, Calgary Lubricants and Grease Plant and Scotford Refinery upgraded their ISO 14001 certifications for sound environmental management in compliance with environmental legislation.

The HSE focus in 2006 will include further improvements in contractor management, enhancement of risk management in downstream operations and continued efforts to improve Oil Products overall safety culture.

OIL PRODUCTS (M D & A) SHELL CANADA LIMITED   51

Brand value and market share are key assets to be managed.

Looking Forward

Shell anticipates continuing price volatility in the downstream industry in 2006 as the balance between supply and demand remains tight in the short to medium term, particularly in Eastern Canada. Oil Products’ integrated strategy emphasizes:

>	targeting safe, reliable and efficient production of high-quality manufactured products at Shell plants, supported by secured, branded sales channels;
>	achieving a balance between maximizing short-term profitability and investing for long-term sustainability;
>	applying the principles of operational excellence to retain sales volumes through existing marketing channels and pursuing opportunities through carefully chosen alliances;
>	delivering capital projects safely, on time and within budget; and
>	delivering on the promise of the Shell brand by offering high-quality, differentiated fuels and lubricants.

Capital Investment

The 2006 investment program for Oil Products totals $510 million, up from $484 million of actual expenditures in 2005. The program includes capital to maintain the integrity of the manufacturing and distribution supply infrastructure and marketing networks and to meet the legislated ethanol mandates in Saskatchewan and Ontario. Energy reduction projects in the Sarnia and Montreal East refineries are expected to improve the Company’s environmental performance and long-term competitive resilience. The plan also includes capital for the commissioning of ultra-low-sulphur diesel projects at the Scotford and Montreal East refineries, which started up in early 2006 ahead of the mid-year legislative requirement. Shell Canada Products will continue to invest in projects to promote the reliability of supplies in an increasingly demanding environment.

Risk Management

BRAND

A strong brand is the foundation of Shell Canada’s profile in the community. Brand value and market share are key assets to be managed. The quality assurance process used to protect the Shell brand and corporate reputation with respect to all fuel products in the market mitigates the risks associated with these intangible assets. Oil Products continues to strengthen its focus on consistency of the retail visual image standard and on the effectiveness of product applications and quality assurance across the entire supply chain.

OPERATIONAL RISK

A key driver of competitive performance in the Oil Products business is the reliability of Shell’s refineries. Comprehensive programs, which have been introduced into all these plants, focus on rigorous prioritization and systematic application of engineering and maintenance work to promote safe and reliable operation.

52   SHELL CANADA LIMITED OIL PRODUCTS (M D & A)

CORPORATE

MANAGEMENT’S DISCUSSION & ANALYSIS

CORPORATE (M D & A) SHELL CANADA LIMITED   53

CORPORATE

The Corporate departments are responsible for services that support Shell’s three main businesses.

These support services include finance; investor relations; information and computing; corporate health, safety, environment and sustainable development; technology (including the Calgary Research Centre); human resources; public affairs; legal services; supply chain management and other corporate services. The activities of these departments are reflected throughout this annual report.

Corporate earnings for 2005 we re $121 million compared with earnings of $8 million for 2004. Results benefited from $164 million after-tax due to the use of non-capital losses, offset by a charge of $43 million after-tax related to the Long Term Incentive Plan (LTIP).

In the fourth quarter of 2005, Corporate earnings were $49 million compared with negative earnings of $13 million for the corresponding period in 2004. The increase was mainly due to the use of additional non-capital losses available to the Company following the acquisition of Coral Resources Canada ULC (an affiliated company) in the fourth quarter of 2004. Fourth-quarter 2005 earnings also included an $8 million after-tax charge related to the LTIP compared with $6 million in 2004.

Tracy Suskin, who is a member of Shell Canada’s office development team, sits at a state-of-the-art workstation in one of the new open-office areas.

Financing Activities

In 2005, Shell Canada’s cash flow from operations was a record $3,056 million compared with $2,129 million in 2004. Cash flow from operations was $930 million for the fourth quarter of 2005, up from $437 million for the corresponding period of 2004. In both cases, the increases reflect higher volumes and prices.

The record cash flow allowed the Company to pay off its remaining long-term borrowings and terminate its accounts receivable securitization program. The combined reduction of long-term debt and accounts receivables sales in 2005 amounted to $285 million. Corporate debt at year-end 2005 was limited to $211 million mainly for the mobile equipment lease covering trucks, scrapers and shovels used at the Muskeg River Mine. Strong cash flows also enabled Shell Canada to build up a substantial cash balance of $1,083 million at the end of 2005. With the reduction in debt and buildup of cash balances, the Company was able to reduce bank credit lines required to support the commercial paper program. The board-approved limit for outstanding commercial paper remains at $1.5 billion.

With strong earnings and cash flow during 2005, the Company increased its dividends twice. On July 21, 2005, the Company increased its quarterly dividend to $0.09 per common share from $0.083 (after adjusting for the June 2005 share split). And on November 17, 2005, Shell increased its quarterly dividend a further $0.02 to $0.11 per common share. The full 2005 year-on-year dividend increase was 17 per cent.

Under a normal course issuer bid to offset stock option dilution, which began May 4, 2004, and ended May 3, 2005, Shell Canada repurchased 3,557,241 common shares (adjusted for the share split) at a total cost of $88 million, which includes $34 million of common shares repurchased in 2005.

54   SHELL CANADA LIMITED CORPORATE (M D & A)

CATHY L. WILLIAMS

Chief Financial Officer

CONTRACTUAL OBLIGATIONS ($ millions)

	Payment Due By Period
			Less than						More than
	Total		1 year		1-3 years		4-5 years		5 years
Long-term debt		210		10		49		151		—
Capital lease obligations		1		1		—		—		—
Operating leases		408		77		117		82		132
Purchase obligations		16 469		1 375		2 185		1 459		11 450
Other long-term obligations		—		—		—		—		—
Total		17 088		1 463		2 351		1 692		11 582

All of Shell’s financing costs in 2005 were based on floating interest rates. Interest and other financing charges were $11 million compared with $26 million in 2004. Elimination of debt financing and accounts receivable sales during the year resulted in lower financing charges.

For most of the year, the Company had positive cash balances resulting in interest income of $9 million compared with $2 million in 2004. Shell Canada typically invests cash balances in short-term money market instruments with counter parties that have a strong credit rating.

On November 17, 2005, Shell announced a $2.7 billion investment program for 2006. The plan includes $2,410 million of capital expenditures and $255 million of related exploration and predevelopment expenses. The Company expects to fund this capital program from the existing cash balance of $1,083 million at the beginning of 2006 and cash from operations. Shell Canada retains a strong corporate credit rating (AA- with Standard & Poor’s Rating Services and AA (low) with Dominion Bond Rating Service). The Company also enjoys ready access to short-term debt markets in Canada and can obtain access to longer-term capital markets in both Canada and the United States should the need arise.

CORPORATE (M D & A) SHELL CANADA LIMITED   55

Outstanding Shares

Effective June 21, 2005, the common shares of the Corporation were split on a three-for-one basis for shareholders of record on June 23, 2005.

As at February 28, 2006, the Company had 825,132,812 common shares and 100 preference shares outstanding. There were 23,315,550 employee stock options outstanding at February 28, 2006, of which 12,157,532 are exercisable.

Pension Plan

Shell Canada bases its pension calculation on long-term rates of return. In 2005, Shell Canada’s long-term rate of return assumption remained at 7.25 per cent, reflecting the market performance expectation of plan assets. The Company reduced the long-term rate of return assumption for 2006 to 7.0 per cent. In 2005, Shell Canada made current service cost and solvency contributions totalling $80 million to its defined benefit plan.

Accounting Standards

VARIABLE INTEREST ENTITIES

Shell Canada adopted Accounting Guideline 15 Consolidation of Variable Interest Entities on January 1, 2005, without prior period restatement.

This standard mandates that the primary beneficiary should consolidate certain entities. Accordingly, the Company consolidated the entity that holds the lease arrangements for large mobile equipment (trucks, scrapers and shovels) used at the Athabasca Oil Sands Project’s Muskeg River Mine. The impact of this change resulted in an increase in accounts receivable of $16 million, an increase in properties plant and equipment of $170 million, a decrease in accounts payable of $28 million and an increase in debt of $210 million at December 31, 2005. Adoption of this new standard did not have a material impact on the Company’s Consolidated Statement of Earnings and Retained Earnings.

LEASE ARRANGEMENTS

Shell Canada adopted EIC-150 Determining Whether an Arrangement Contains a Lease effective January 1, 2005. This standard requires companies to analyze arrangements that do not take the legal form of a lease but convey a right to use a tangible asset. An assessment as to whether an arrangement contains a lease is made at the inception of the arrangement. Reassessments are also undertaken when there is a change in the contractual terms, a renewal or extension is exercised, or there are other specified changes. The adoption of this standard had no impact on the Company’s financial statements.

EARNINGS PER SHARE

Shell Canada will adopt the amended Earnings per Share standard when a final standard is issued. This amendment to the standard proposes to change the guidance for the calculation of diluted earnings per share in the application of the treasury stock method. This amendment is not expected to have a material impact on the computation of diluted earnings per share.

56   SHELL CANADA LIMITED CORPORATE (M D & A)

FINANCIAL INSTRUMENTS/HEDGES/COMPREHENSIVE INCOME

Shell Canada will adopt the new financial reporting standards for Financial Instruments, Hedges and Comprehensive Income in the first quarter of 2007. These standards are effective for years beginning on or after October 1, 2006. Shell will assess the impact of these standards in 2006.

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 section “Accounting Policies” on pages 65 to 67 of the Notes to Consolidated Financial Statements.

Critical Accounting Estimates

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 are 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.

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 independent 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 2005 was 7.25 per cent compared with an average of actual returns

CORPORATE (M D & A) SHELL CANADA LIMITED   57

of 9.6 per cent annually over the last 10 years ended December 31, 2005. Shell’s exposure to changes in the underlying assumptions is summarized on page 80 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 expenses represented less than one per cent of Shell’s total expenses in 2005.

Cecile Siewe, Senior Technology Development Engineer, and Materials Research Advisor Malcolm Hay test materials at Shell’s Calgary Research Centre.

Related Party Transactions

In the course of regular business activities, Shell Canada enters into transactions with related parties, including affiliates of Royal Dutch Shell plc. 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.

Technology

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.

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 regularly executes commodity transactions priced in other currencies, mainly U.S. dollars. The majority of these U.S. dollar transactions involve crude oil purchases. Netting foreign cash flows across the various businesses each month helps reduce the effect of these fluctuations for the Company overall. During the year, the Company recorded $14 million after-tax in foreign exchange gains. These gains are primarily attributable to working capital holding gains caused by the Canadian dollar appreciation during the year. Shell Canada reviews all foreign currency commitments on major capital projects and, depending on specific circumstances, may hedge on a transaction-by-transaction basis. At year-end 2005, no material hedges were in place.

To reduce the financial risk resulting from potential incidents, the Company purchases appropriate insurance against risks associated with all its operations and projects. Shell’s major insurance programs consist of executive protection, property damage and business interruption, third party liability and construction insurance.

58   SHELL CANADA LIMITED CORPORATE (M D & A)

 FINANCIAL INFORMATION

YEAR ENDED DECEMBER 31 , 2005

59	Financial Information
		60	Management’s Report
		61	Auditors’ Report
		62	Consolidated Financial Statements
83	Supplemental Disclosure
		83	Oil Products
		84	Exploration & Production
		88	Oil Sands
		90	Landholdings
		91	Financial Data and
			Quarterly Stock-Trading Information
92	Corporate Information
		92	Corporate Directory and
			Board of Directors
		96	Corporate Governance Practices
102	Investor Information

FINANCIAL INFORMATION SHELL CANADA LIMITED   59

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 Canadian 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, 2005.

PricewaterhouseCoopers LLP, Chartered Accountants, appointed by the shareholders, have audited the financial statements and conducted a review of 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 reporting matters. The committee recommends the appointment of the external auditors to shareholders. 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 President and Chief Executive Officer February 21, 2006	Cathy L. Williams Chief Financial Officer	Donna Tarka Controller

60    SHELL CANADA LIMITED MANAGEMENT’S REPORT

AUDITORS’ REPORT

TO THE SHAREHOLDERS OF SHELL CANADA LIMITED

We have audited the consolidated balance sheets of Shell Canada Limited as at December 31, 2005, 2004 and 2003 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, 2005. 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, 2005, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005, in accordance with Canadian generally accepted accounting principles.

Chartered Accountants
Calgary, Alberta

February 21, 2006

AUDITORS’ REPORT SHELL CANADA LIMITED   61

CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS

Year ended December 31 ($ millions)	2005		2004			2003
REVENUES
Sales and other operating revenues		14 171		11 197			9 076
Dividends, interest and other income		223		91			41
Total revenues		14 394		11 288			9 117
EXPENSES
Cost of goods sold		7 900		6 068			5 077
Operating, selling and general		2 400		2 048			1 771
Transportation		331		309			270
Exploration and predevelopment		184		230			88
Depreciation, depletion, amortization and retirements		782		722			637
Interest on long-term debt		8		16			31
Other interest and financing charges		3		10			35
Total expenses		11 608		9 403			7 909
EARNINGS
Earnings before income tax		2 786		1 885			1 208
Current income tax		602		617			188
Future income tax		170		(18	)		210
Total income tax (Note 4)		772		599			398
Earnings		2 014		1 286			810
Per common share (dollars) (Note 13)
Earnings — basic		2.44		1.56			0.98
Earnings — diluted		2.41		1.55			0.97
RETAINED EARNINGS
Balance at beginning of year		6 011		5 045			4 529
Earnings		2 014		1 286			810
		8 025		6 331			5 339
Common shares buy-back (Note 3)		33		61			68
Dividends		302		259			226
Balance at end of year		7 690		6 011			5 045

62   SHELL CANADA LIMITED CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended December 31 ($ millions)	2005			2004			2003
CASH FROM OPERATING ACTIVITIES (Note 1)
Earnings		2 014			1 286			810
Exploration and predevelopment		99			160			42
Non-cash items
Depreciation, depletion, amortization and retirements		782			722			637
Future income tax		170			(18	)		210
Stock-based compensation		—			(10	)		12
Other items		(9	)		(11	)		(10	)
Cash flow from operations		3 056			2 129			1 701
Movement in working capital and operating activities
Accounts receivable securitization program (Note 12)		(150	)		(431	)		61
Other working capital and operating items		155			417			(55	)
		3 061			2 115			1 707
CASH INVESTED (Note 1)
Capital, exploration and predevelopment expenditures		(1 715	)		(951	)		(713	)
Movement in working capital from investing activities		69			(7	)		(25	)
Capital expenditures and movement in working capital		(1 646	)		(958	)		(738	)
Proceeds on disposal of properties, plant and equipment		6			4			25
		(1 640	)		(954	)		(713	)
CASH FROM FINANCING ACTIVITIES
Common shares buy-back (Note 3)		(34	)		(63	)		(71	)
Proceeds from exercise of common share stock options		6			37			15
Dividends paid		(302	)		(259	)		(226	)
Long-term debt and other		(135	)		(600	)		(190	)
Short-term financing		—			(149	)		(522	)
		(465	)		(1 034	)		(994	)
Increase in cash		956			127			—
Cash at beginning of year		127			—			—
Cash at end of year1		1 083			127			—
Supplemental disclosure of cash flow information
Dividends received		15			14			10
Interest received		42			28			18
Interest paid		12			28			70
Income tax paid		683			303			271

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

CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   63

CONSOLIDATED BALANCE SHEET

As at December 31 ($ millions)	2005		2004		2003
ASSETS
Current assets
Cash and short-term investments		1 083		127		—
Accounts receivable		1 821		1 213		495
Inventories
Crude oil, products and merchandise		535		501		497
Materials and supplies		92		83		83
Prepaid expenses		71		85		81
Future income tax (Note 4)		316		314		65
		3 918		2 323		1 221
Investments, long-term receivables and other		671		549		455
Properties, plant and equipment (Note 2)		9 066		8 034		7 937
Total assets		13 655		10 906		9 613
LIABILITIES
Current liabilities
Short-term borrowings		—		—		149
Accounts payable and accrued liabilities and other		2 242		1 683		1 157
Income and other taxes payable		687		657		255
Current portion of asset retirement and other long-term obligations		26		35		17
Current portion of long-term debt (Note 6)		11		136		734
		2 966		2 511		2 312
Asset retirement and other long-term obligations (Note 7)		545		417		395
Long-term debt (Note 6)		200		1		2
Future income tax (Note 4)		1 730		1 448		1 366
Total liabilities		5 441		4 377		4 075
Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITY
Capital stock (Note 3)
100 4% preference shares		1		1		1
825 102 612 common shares (2004 – 825 727 686; 2003 – 825 126 477)		523		517		480
		524		518		481
Contributed surplus		—		—		12
Retained earnings		7 690		6 011		5 045
Total shareholders’ equity		8 214		6 529		5 538
Total liabilities and shareholders’ equity		13 655		10 906		9 613

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

Clive Mather Director	Kerry L. Hawkins Director

64   SHELL CANADA LIMITED CONSOLIDATED FINANCIAL STATEMENTS

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

The cost 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. All other inventories are stated at the lower of cost, applied on a weighted average basis, or net realizable 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 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, property acquisition 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   65

Note 1. Accounting Policies (continued)

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 recognized in earnings.

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 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 and with the changes recognized in earnings.

66    SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

VARIABLE INTEREST ENTITIES

The Corporation consolidates entities where it is deemed to be the primary beneficiary. The consolidation of these entities has resulted in the recording of an asset, long-term debt and working capital.

MEASUREMENT UNCERTAINTY

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 (SARs) 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.

MINE STRIPPING COSTS

Mine stripping costs are not significant and therefore expensed in the period they are incurred.

CHANGE IN ACCOUNTING POLICY

Variable Interest Entities

Shell Canada adopted Accounting Guideline 15 Consolidation of Variable Interest Entities on January 1, 2005, without prior period restatement. This standard mandates that the primary beneficiary should consolidate certain entities. Accordingly, the Company consolidated the entity that holds the lease arrangements for large mobile equipment (trucks, scrapers and shovels) used at the Athabasca Oil Sands Project’s Muskeg River Mine.

The impact of this change resulted in an increase in accounts receivable of $16 million, an increase in properties, plant and equipment of $170 million, a decrease in accounts payable of $28 million and an increase in debt of $210 million at December 31, 2005. Adoption of this new standard did not have a material impact on the Company’s Consolidated Statement of Earnings and Retained Earnings.

RECLASSIFICATION

The Consolidated Statement of Cash Flows reflects certain items, primarily exploration expense and pension contributions, as reductions of cash from operating activities. These items were reflected in 2004 as investing activities. The reclassification of these 2004 items reflects exploration costs of $70 million (2003 — $46 million) in earnings from continuing operations, and a pension contribution of $68 million (2003 — $37 million) as a movement in working capital. In addition, the Corporation reclassified certain LTIP expenses of $151 million in 2004 (2003 — nil) as a reduction of cash flow from operations offset by a change in working capital.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   67

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
2005	2004		2003
1 577	1 306		1 354		Natural gas
842	716		597		Natural gas liquids
1 490	1 024		467		Crude oil and bitumen
(485)	(364	)	(354	)	Royalties
4 361	3 615		3 074		Gasolines
4 432	3 047		2 374		Middle distillates
1 675	1 600		1 293		Other products
502	344		312		Other revenues
—	—		—		Inter-segment sales
14 394	11 288		9 117		Total revenues
7 900	6 068		5 077		Cost of goods sold
—	—		—		Inter-segment purchases
2 400	2 048		1 771		Operating, selling and general
331	309		270		Transportation
184	230		88		Exploration and predevelopment
782	722		637		Depreciation, depletion, amortization and retirements
8	16		31		Interest on long-term debt
3	10		35		Other interest and financing charges
11 608	9 403		7 909		Total expenses
2 786	1 885		1 208		Earnings (loss) before income tax
602	617		188		Current income tax
170	(18	)	210		Future income tax
772	599		398		Total income tax
2 014	1 286		810		Earnings (loss)

68    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
2005			2004			2003			2005			2004			2003			2005			2004			2003		2005			2004			2003
	1 577			1 306			1 354			—			—			—			—			—			—		—			—			—
	842			716			597			—			—			—			—			—			—		—			—			—
	113			77			81			1 377			947			386			—			—			—		—			—			—
	(473	)		(355	)		(350	)		(12	)		(9	)		(4	)		—			—			—		—			—			—
	—			—			—			—			—			—			4 361			3 615			3 074		—			—			—
	—			—			—			—			—			—			4 432			3 047			2 374		—			—			—
	327			329			268			—			—			46			1 348			1 271			979		—			—			—
	73			41			28			140			32			—			226			216			218		63			55			66
	152			84			135			1 643			1 102			478			412			386			210		—			—			—
	2 611			2 198			2 113			3 148			2 072			906			10 779			8 535			6 855		63			55			66
	—			—			—			790			544			306			7 108			5 525			4 767		2			(1	)		4
	225			159			148			281			283			146			1 701			1 130			529		—			—			—
	511			422			364			639			542			478			1 133			1 029			893		117			55			36
	331			309			270			—			—			—			—			—			—		—			—			—
	168			230			88			16			—			—			—			—			—		—			—			—
	367			357			282			209			171			158			204			193			196		2			1			1
	—			—			—			—			—			—			—			—			—		8			16			31
	—			—			—			—			—			—			—			—			—		3			10			35
	1 602			1 477			1 152			1 935			1 540			1 088			10 146			7 877			6 385		132			81			107
	1 009			721			961			1 213			532			(182	)		633			658			470		(69	)		(26	)		(41	)
	407			385			382			45			16			(253	)		296			249			95		(146	)		(33	)		(36	)
	(63	)		(113	)		(40	)		378			138			213			(101	)		(42	)		31		(44	)		(1	)		6
	344			272			342			423			154			(40	)		195			207			126		(190	)		(34	)		(30	)
	665			449			619			790			378			(142	)		438			451			344		121			8			(11	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   69

Note 2. Segmented Information (continued)

CASH FLOW ($ millions)

TOTAL
2005			2004			2003
	3 056			2 129			1 701		Cash flow from operations
	5			(14	)		6		Movement in working capital and operating activities
	3 061			2 115			1 707		Cash from operating activities
	(1 715	)		(951	)		(713	)	Capital, exploration and predevelopment expenditures
	69			(7	)		(25	)	Movement in working capital from investing activities
	(1 646	)		(958	)		(738	)
	6			4			25		Other cash invested
	(465	)		(1 034	)		(994	)	Cash from financing activities
	956			127			–		Increase (decrease) in cash

CAPITAL EMPLOYED ($ millions)

TOTAL
2005			2004			2003
	3 918			2 323			1 221		Current assets
	671			549			455		Investments, long-term receivables and other
	4 589			2 872			1 676
	15 575			13 843			13 101		Properties, plant and equipment at cost
	(6 509	)		(5 809	)		(5 164	)	Accumulated depreciation, depletion and amortization
	9 066			8 034			7 937		Net properties, plant and equipment
	13 655			10 906			9 613		Total assets
	(5 230	)		(4 240	)		(3 190	)	Total liabilities less long-term debt and short-term borrowings
	8 425			6 666			6 423		Capital employed

70   SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EXPLORATION & PRODUCTION									OIL SANDS									OIL PRODUCTS									CORPORATE
2005			2004			2003			2005			2004			2003			2005			2004			2003			2005			2004			2003
	1 056			855			913			1 388			686			233			533			580			555			79			8			–
	(86	)		159			99			25			130			62			235			146			(228	)		(169	)		(449	)		73
	970			1 014			1 012			1 413			816			295			768			726			327			(90	)		(441	)		73
	(873	)		(451	)		(385	)		(343	)		(179	)		(123	)		(484	)		(313	)		(194	)		(15	)		(8	)		(11	)
	28			9			(6	)		38			(26	)		(17	)		1			11			(3	)		2			(1	)		1
	(845	)		(442	)		(391	)		(305	)		(205	)		(140	)		(483	)		(302	)		(197	)		(13	)		(9	)		(10	)
	1			1			24			4			—			—			1			2			—			—			1			1
	—			—			—			—			—			—			—			—			—			(465	)		(1 034	)		(994	)
	126			573			645			1 112			611			155			286			426			130			(568	)		(1 483	)		(930	)

EXPLORATION & PRODUCTION									OILSANDS									OIL PRODUCTS									CORPORATE
2005			2004			2003			2005			2004			2003			2005			2004			2003			2005			2004			2003
	731			542			440			137			198			193			1 742			1 471			1 163			1 308			112			(575	)
	116			100			87			89			69			54			378			304			254			88			76			60
	847			642			527			226			267			247			2 120			1 775			1 417			1 396			188			(515	)
	5 879			5 097			4 802			4 366			3 834			3 667			5 215			4 802			4 528			115			110			104
	(3 236	)		(2 886	)		(2 544	)		(552	)		(315	)		(161	)		(2 650	)		(2 536	)		(2 392	)		(71	)		(72	)		(67	)
	2 643			2 211			2 258			3 814			3 519			3 506			2 565			2 266			2 136			44			38			37
	3 490			2 853			2 785			4 040			3 786			3 753			4 685			4 041			3 553			1 440			226			(478	)
	(1 438	)		(1 330	)		(1 137	)		(1 521	)		(926	)		(661	)		(2 405	)		(1 911	)		(1 440	)		134			(73	)		48
	2 052			1 523			1 648			2 519			2 860			3 092			2 280			2 130			2 113			1 574			153			(430	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   71

Note 3. Capital Stock and Stock-Based Compensation

CAPITAL STOCK

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 year. The preference shares may be redeemed at the amount paid up thereon plus accrued dividends.

On June 21, 2005, the common shares of the Corporation were split on a three-for-one basis for shareholders of record on June 23, 2005. Common share data and per share information have been restated to reflect the impact of the share split.

On April 30, 2004, Shell Canada Limited announced its intention to make a normal course issuer bid, to repurchase for cancellation up to one per cent of its issued and outstanding common shares as at April 27, 2004. The bid began on May 4, 2004, and expired on May 3, 2005. The bid was used to counter dilution resulting from the issuance of common shares under the Corporation’s LTIP. Under this bid, a total of 3,557,241 common shares (adjusted for the share split) were repurchased and cancelled at market prices for a total cost of $88 million, which includes $34 million of shares purchased in 2005.

Under an earlier normal course issuer bid, which commenced February 7, 2003, and ended February 6, 2004, 4,584,000 common shares (adjusted for the share split) were repurchased and cancelled at market prices for a total cost of $80 million, which included $9 million of shares purchased in 2004.

COMMON SHARES	2005						2004						2003
	Shares			($ millions)			Shares			($ millions)			Shares			($ millions)
Balance at beginning of year		825 727 686			517			825 126 477			480			827 724 870			468
Activity during year
Options exercised		580 767			7			3 423 909			39			1 514 307			15
Normal course issuer bid		(1 205 841	)		(1	)		(2 822 700	)		(2	)		(4 112 700	)		(3	)
Balance at year-end		825 102 612			523			825 727 686			517			825 126 477			480

STOCK — BASED COMPENSATION

Under the LTIP, the Company may grant options to executives, senior management 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 and senior management, 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 2005, the Company granted 5,926,050 (2004 — 5,089,500) options with an exercise price of $26.42 (2004 — $20.85). Of the options granted 2,424,900 (2004 — 843,000) are performance-based options.

In 2004, the Company approved a proposal to attach SARs to 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. The compensation expense recorded in 2005 totalled $173 million.

72   SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As at December 31, 2005, the total liability for expected cash settlements with respect to those options attached with SARs under the LTIP was $358 million (2004 — $151 million). During the year ended December 31, 2005, cash payments of $55 million (2004 — $1 million) were made for 2,655,048 (2004 — 100,125) SARs exercised.

At December 31, 2005, the Company had 47,721,018 (2004 — 48,320,985) shares reserved to meet outstanding options for the purchase of common shares.

A summary of the status of the Company’s stock option plans as at December 31, 2005, 2004 and 2003, and changes during the years ending on those dates is presented below:

STOCK OPTIONS	2005					2004					2003
				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		18 330			15.12		17 619			12.66		14 331			11.41
Granted		5 926			26.42		5 090			20.85		5 022			15.34
Exercised — common shares		(581	)		9.78		(3 424	)		10.80		(1 515	)		9.85
Exercised — SARs		(2 655	)		13.13		(100	)		12.82		—			—
Forfeited		(54	)		20.70		(855	)		16.31		(219	)		11.20
Outstanding at year-end		20 966			18.70		18 330			15.12		17 619			12.67
Options exercisable at year-end		9 594					8 454					8 424

Stock options outstanding at December 31, 2005:

	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)
$4 — $11		1 910		2.8	$	8.02		1 910	$	8.02
$11 — $17		8 685		6.4	$	14.69		6 562	$	14.47
$17 — $23		4 469		8.1	$	20.85		1 122	$	20.85
$23 — $29		5 832		9.1	$	26.38		—		—
$29 — $35		70		9.3	$	29.81		—		—
		20 966		7.2	$	18.70		9 594	$	13.93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   73

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)	2005			2004			2003
Earnings before income tax		2 786			1 885			1 208
Basic corporate tax rate (%)		37.0			37.5			38.4
Income tax at basic rate		1 031			707			464
Increase (decrease) resulting from:
Crown royalties and other payments to provinces		102			90			107
Resource allowance and other abatement measures		(107	)		(105	)		(82	)
Manufacturing and processing credit		(3	)		(3	)		(3	)
Changes in income tax rates		(31	)		(40	)		(68	)
Capital losses not previously recognized		—			(1	)		(10	)
Tax pools acquired from affiliated company		(164	)		—			—
Other, including revisions in previous tax estimates		(56	)		(49	)		(10	)
Total		772			599			398
Effective income tax rates on earnings (%)		27.7			31.8			32.9

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

($ millions)	2005			2004			2003
Current
LIFO inventory valuation		205			116			67
Non-capital losses carryforward		—			149			—
Long Term Incentive Plan		106			44			—
Employee future benefits		2			(5	)		(5	)
Asset retirement obligations		8			9			3
Other		(5	)		1			—
Total — current		316			314			65
Non-current
Properties, plant and equipment		(1 746	)		(1 433	)		(1 360	)
Employee future benefits		(110	)		(93	)		(74	)
Asset retirement obligations		94			87			89
Long Term Incentive Plan		17			7			—
Other		15			(16	)		(21	)
Total — non-current		(1 730	)		(1 448	)		(1 366	)
Net future income tax liability		(1 414	)		(1 134	)		(1 301	)

The Corporation has $95 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.

74    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)	2005		2004		2003
Items reported separately:
Income tax		772		599		398
Items included in sales or other operating revenues or in operating, selling and general expenses:
Crown royalties and mineral taxes		420		304		289
Royalties paid to private leaseholders		74		60		64
Other taxes		108		108		84
Research and development expense		41		28		10

Note 6. Long-Term Debt

($ millions)	Issued	Maturity	2005			2004			2003
Medium-Term Notes
Floating rate notes1	Feb 14, 2002	Dec 15, 2004		—			—			237
Floating rate notes2	Mar 22, 2002	Mar 15, 2005		—			134			140
Floating rate notes1	Mar 22, 2002	Jun 15, 2004		—			—			105
Floating rate notes1	Sep 24, 2002	Sep 24, 2004		—			—			250
Capital leases		varying dates		1			3			4
Mobile equipment lease		varying dates		210			—			—
				211			137			736
Included in current liabilities				(11	)		(136	)		(734	)
Total				200			1			2

1	In 2004, floating rate notes totalling $592 million were repaid.
2	In 2005, floating rate notes totalling $134 million were repaid.

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. These amounts were repaid in full in 2005. Interest on the floating rate notes was paid quarterly at rates ranging from 10 to 17 basis points above the three-month Canadian Dollar Offer Rate.

Shell Canada adopted Accounting Guideline 15 Consolidation of Variable Interest Entities on January 1, 2005, without prior period restatement. Accordingly, the Company consolidated the entity that holds the lease arrangements for large mobile equipment at the Athabasca Oil Sands Project’s Muskeg River Mine. The mobile equipment lease has terms ranging from one to five years. Interest fluctuates with prime and was paid monthly at rates ranging from 2.98 per cent to 3.59 per cent.

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

$ 11 million in 2006
$ 3 million in 2007
$ 46 million in 2008
$ 103 million in 2009
$ 48 million in 2010.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   75

Note 7. Asset Retirement and Other Long-Term Obligations

($ millions)	2005			2004			2003
Asset retirement obligation		304			282			264
Other employee future benefits		143			137			128
Other obligations		122			33			20
		569			452			412
Included in current liabilities		(24	)		(35	)		(17	)
Total		545			417			395

The change in the asset retirement obligations is as follows:

($ millions)	2005			2004			2003
Asset retirement obligations liability at January 1		282			264			261
Additions		17			4			—
Accretion		15			14			13
Revisions in estimated cash flows		15			20			—
Settlements		(25	)		(20	)		(10	)
Asset retirement obligations liability at December 31		304			282			264

The total undiscounted amount of the estimated cash flows required to settle the obligations is $540 million (2004 – $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.

76    SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Financial Instruments

	Notional Fair Value1						Unrealized Gain (Loss)2
($ millions)	2005		2004		2003		2005		2004		2003
Commodity contracts		24		43		37		1		—		2
Foreign exchange contracts		7		19		29		—		—		(2	)

	Notional Fair Value1						Carrying Value
($ millions)	2005		2004		2003		2005		2004		2003
Long-term debt3, 4		—		134		733		—		134		732

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 of debt.
4	The mobile equipment lease, an entity that was consolidated by the Company in 2005, is not classified as a financial instrument.

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:

	2005				2004				2003
($ millions except as noted)	Face Value		Volume1		Face Value		Volume1		Face Value		Volume1
Crude oil and refined products commitments		22		296		43		810		35		943
Electricity commitments		1		9		—		—		—		3

¹ 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 plc. 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   77

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 was December 31, 2005. The next actuarial valuation for funding purposes must be no later than December 31, 2008.

ACCRUED BENEFIT OBLIGATION ($ millions)	2005						2004						2003
	Pension			Other			Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits			Benefits			Benefits
Accrued benefit obligation as at January 1		2 204			168			1 998			182			1 809			163
Current service cost		38			1			32			1			28			1
Interest cost		126			10			118			11			117			10
Actuarial loss (gain)		41			9			25			(13	)		10			3
Transfers		28			—			25			—			19			—
Benefits paid		(134	)		(7	)		(129	)		(7	)		(126	)		(7	)
Change in assumption		265			39			135			(9	)		141			18
Plan amendments		—			—			—			3			—			(6	)
Accrued benefit obligation as at December 31		2 568			220			2 204			168			1 998			182

Included in the above pension benefits are unfunded amounts for the supplemental pension obligations of $177 million (2004 — $143 million; 2003 — $111 million) and $29 million (2004 — $29 million; 2003 — $30 million) for the spousal pension obligations.

PLAN ASSETS ($ millions)	2005					2004					2003
Plan assets as at January 1		1 976		—			1 782		—			1 648		—
Actual return on plan assets		232		—			182		—			194		—
Employer contributions		89		7			119		7			51		7
Employee contributions		3		—			3		—			2		—
Transfers		28		—			25		—			19		—
Benefits paid		(134	)	(7	)		(129	)	(7	)		(126	)	(7	)
Expenses		(6	)	—			(6	)	—			(6	)	—
Fair value as at December 31		2 188		—			1 976		—			1 782		—
Funded status — deficit		(380	)	(220	)		(228	)	(168	)		(216	)	(182	)
Unamortized net losses1		952		60			805		12			761		36
Unamortized past service cost		—		3			—		3			—		—
Unamortized transitional (asset) obligation2		(108	)	14			(143	)	16			(179	)	18
Accrued benefit asset (obligation)3		464		(143	)		434		(137	)		366		(128	)

1	Unamortized net losses are amortized over the expected average remaining service period of active employees, which is currently nine years (2004 — nine years; 2003 — eight years).
2	Three years remain in the amortization of the pension benefit transitional asset. Six years remain in the amortization of the other benefit transitional obligation.
3	The accrued benefit asset (obligation) is included in the “Investments, long-term receivables and other” line on the Consolidated Balance Sheet.

78   SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(per cent)	2005		2004		2003
Equity securities		49.4		46.9		44.4
Debt securities		43.8		40.3		45.8
Real Estate		3.5		3.4		3.2
Other		3.3		9.4		6.6
Total		100		100		100

EXPENSE ($ millions)	2005						2004						2003
	Pension			Other			Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits			Benefits			Benefits
Current service cost		38			1			32			1			28			1
Employee contributions		(3	)		—			(3	)		—			(2	)		—
Interest cost		126			10			118			11			117			10
Plan amendments		—			—			—			3			—			(6	)
Actual return on plan assets		(232	)		—			(182	)		—			(194	)		—
Actuarial loss (gain) on accrued benefit obligation		306			48			160			(22	)		151			21
Costs arising in the period		235			59			125			(7	)		100			26
Differences between costs arising in the period and costs recognized in the period in respect of:
Return on plan assets		95			—			53			—			63			—
Actuarial loss (gain)		(235	)		(47	)		(91	)		24			(108	)		(21	)
Plan amendments		—			—			—			(3	)		—			6
Transitional obligation (asset)		(36	)		2			(36	)		2			(36	)		3
Net expense for benefit plan		59			14			51			16			19			14
Defined contribution segment		21			—			13			—			12			—
Total		80			14			64			16			31			14

ASSUMPTIONS (per cent)	2005			2004			2003
Discount rate		5.00	5.00		5.80	5.80		6.00	6.00
Long-term rate of return on plan assets1		7.25	—		7.25	—		7.50	—
Rate of compensation growth		4.70	4.70		4.70	4.70		3.20	3.20
Health-care trend rate 2		—	7.01		—	5.92		—	6.12

1	The long-term rate of return on plan assets was used in the pension calculation for the fiscal year noted. For 2006, the long-term rate of return on plan assets has been reduced to 7.0 per cent.
2	The health-care trend rate is a weighted average of medical, dental, and provincial health-care trend rates, decreasing each year to a rate of 4.0 per cent in 2014 and thereafter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHELL CANADA LIMITED   79

Note 9. Employee Future Benefits (continued)

ASSUMPTIONS SENSITIVITIES ($ millions)	One Per Cent Increase			One Per Cent Decrease
Discount rate
Effect on pension benefit expense		(28	)		35
Effect on accrued benefit obligation		(320	)		404
Long-term rate of return on plan assets
Effect on pension benefit expense		(21	)		21
Rate of compensation growth
Effect on pension benefit expense		11			(9	)
Effect on accrued benefit obligation		62			(56	)
Health-care cost trend rate
Effect on current service and interest cost		1			(1	)
Effect on accrued benefit obligation		24			(19	)

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 majority shareholder. 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 plc that are reflected in the Consolidated Statement of Earnings and Retained Earnings are shown in the table below:

($ millions)	2005		2004		2003
Purchases of crude oil, petroleum products, chemicals and service agreements		5 507		3 961		2 707
Amounts payable in respect of such purchases		204		393		228
Sales of natural gas, petroleum products and chemicals		2 343		1 928		1 609
Amounts receivable in respect of such sales		245		215		138

Royal Dutch Shell plc 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 of comparable commercial transactions. As a result of this transaction, Shell Canada acquired non-capital losses to be used against future taxable income. The losses were fully recognized in 2005.

80   SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Commitments and Contingencies

At December 31, 2005, 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)	Commitments1		Commitments2
2006		77		1 375
2007		64		1 309
2008		53		876
2009		44		762
2010		38		697
thereafter		132		11 450	3

1	These operating commitments cover leases of service stations, 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	The Corporation has a commitment of $9.5 billion to purchase certain feedstocks from the other joint venture participants in the Athabasca Oil Sands Project (AOSP). This commitment is for the period up to 2028, and is based on the current year pricing premise. Various pipeline charges of $1.0 billion and $0.9 billion of AOSP utilities and hydrogen commitments are also included in the total.

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   81

Note 12. Sale of Accounts Receivable

In 2005, the previously approved accounts receivable securitization program of $600 million was reduced to zero (2004 – $150 million) and the Corporation elected to terminate the program.

Note 13. Earnings Per Share

	2005		2004		2003
Earnings ($ millions)		2 014		1 286		810
Weighted average number of common shares (millions)		825		826		826
Dilutive securities (millions)
Options on Long Term Incentive Plan1		9		6		5
Basic earnings per share (dollars)2		2.44		1.56		0.98
Diluted earnings per share (dollars)3		2.41		1.55		0.97

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.

On June 21, 2005, the common shares of the Corporation were split on a three-for-one basis for shareholders of record on June 23, 2005. Common share data and per share information have been restated to reflect the impact of the share split.

82   SHELL CANADA LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL OIL PRODUCTS DISCLOSURE

Year ended December 31 (unaudited)

PRODUCTION (thousands of cubic metres/day)	2005		2004		2003
Crude oil processed by Shell refineries
Montreal East (Quebec)		18.6		17.6		18.2
Sarnia (Ontario)		10.4		10.9		10.1
Scotford (Alberta)1		15.9		16.6		14.6
Total		44.9		45.1		42.9
Rated refinery capacity at year-end
Montreal East (Quebec)		20.7		20.7		19.4
Sarnia (Ontario)		12.0		12.0		11.4
Scotford (Alberta)		18.9		17.7		18.2
Total		51.6		50.4		49.0

SALES (thousands of cubic metres/day)	2005		2004		2003
Gasolines		21.0		20.9		20.9
Middle distillates		21.0		19.2		17.9
Other products		7.1		7.4		6.9
Total		49.1		47.5		45.7

	2005		2004		2003
Refinery utilization (per cent) 2		87		89		90
Earnings per litre (cents) 3		2.4		2.6		2.1

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      83

SUPPLEMENTAL EXPLORATION & PRODUCTION DISCLOSURE

Year ended December 31 (unaudited)

PRODUCTION 1	2005		2004		2003
Natural gas (millions of cubic feet/day)
Gross		512		540		562
Net		413		449		467
Ethane, propane and butane (thousands of barrels/day)
Gross		23.3		25.1		26.7
Net		18.6		19.9		21.3
Condensate (thousands of barrels/day)
Gross		15.3		15.2		16.8
Net		11.8		11.8		13.1
Bitumen (thousands of barrels/day)
Gross		8.9		8.1		9.2
Net		8.7		7.9		9.1
Sulphur (thousands of long tons/day)
Gross		5.3		5.6		5.9
Net		4.8		4.9		5.1

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	2005		2004		2003
Natural gas — gross (millions of cubic feet/day)		510		536		555
Ethane, propane and butane — gross (thousands of barrels/day)		38.2		44.0		44.5
Condensate — gross (thousands of barrels/day)		20.7		19.6		17.9
Bitumen products — gross (thousands of barrels/day)		11.8		11.5		13.9
Sulphur — gross (thousands of long tons/day)		11.7		11.3		10.7

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

PRICES	2005		2004		2003
Natural gas average plant gate netback price ($/mcf)		8.23		6.49		6.46
Ethane, propane and butane average field gate price ($/bbl)		34.79		28.71		25.48
Condensate average field gate price ($/bbl)		66.76		50.46		41.13

84     SHELL CANADA LIMITED SUPPLEMENTAL EXPLORATION & PRODUCTION DISCLOSURE

EXPLORATION AND DEVELOPMENT WELLS DRILLED	2005				2004				2003
	Gross		Net		Gross		Net		Gross		Net
Exploration
Gas		4		2		3		1		3		1
Dry		5		3		4		2		5		4
		9		5		7		3		8		5
Development
Gas		12		8		10		8		7		4
Bitumen		9		9		—		—		—		—
Dry		—		—		1		—		1		1
		21		17		11		8		8		5
Total wells drilled		30		22		18		11		16		10
Wells in progress		52		49		19		15		10		7
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	2005				2004				2003
	Gross		Net		Gross		Net		Gross		Net
Gas wells
Alberta		321		271		303		259		294		252
British Columbia		2		1		1		1		1		1
Nova Scotia		18		6		15		5		15		5
		341		278		319		265		310		258
Bitumen wells
Alberta		65		65		58		58		58		58
Total productive wells		406		343		377		323		368		316

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      85

SUPPLEMENTAL EXPLORATION & PRODUCTION DISCLOSURE (continued)

Year ended December 31 (unaudited)

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				N ATURAL GAS
				(billions of cubic feet)
	2005			2004			2003
Net proved developed and undeveloped reserves
Beginning of year		1 239			1 365			1 806
Revisions of previous estimates		(44	)		(51	)		(335	)
Extensions, discoveries and other additions		135			122			34
Improved recovery methods		—			4			30
Purchases of reserves in place		6			—			—
Sales of reserves in place		—			(37	)		—
Production		(151	)		(164	)		(170	)
End of year		1 185			1 239			1 365
Net proved developed reserves
End of year		752			893			1 082
Gross proved developed and undeveloped reserves
End of year		1 592			1 595			1 775
Gross proved developed reserves
End of year		1 026			1 160			1 415

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.

86      SHELL CANADA LIMITED SUPPLEMENTAL EXPLORATION & PRODUCTION DISCLOSURE

NATURAL GAS

In 2005, total net natural gas proved reserves decreased by 54 billion cubic feet (bcf) to 1,185 bcf from 1,239 bcf in 2004. Additions of 135 bcf due to extensions and discoveries included an additional booking of 54 bcf for Tay River attributed to a planned development well and 38 bcf for the basin-centered gas area wells. The balance of these additions resulted from continued exploration success in northeast British Columbia and development drilling in the Foothills. The acquisition of interest in three gas wells in the Burmis region of southern Alberta added six bcf. These additions were offset by a reduction of 44 bcf reflecting economic conditions and new technical information, mainly due to higher natural gas royalty payments over the life of the reserves. Production of 151 bcf further reduced reserves.

NATURAL GAS LIQUIDS

Production of 11 million barrels was partially offset by positive technical and economic revisions of three million barrels resulting in a year-end 2005 net proved reserves position of 54 million barrels.

BITUMEN

In 2005, 28 million net proved barrels of Peace River bitumen reserves were rebooked. In 2004, adherence to United States SEC reserves reporting rules and related guidance prescribing the use of constant year-end pricing and costs for proved reserves determination resulted in the Company debooking all proved Peace River bitumen reserves.

Over 2005, Shell Canada developed a new strategy for development of the Peace River lease, which includes plans for a proposed expansion project. The 28 million barrels rebooked for 2005 is solely the reserves portion attributable to the existing and currently drilling wells, and existing facilities. Progression of the engineering and regulatory work for the expansion will continue over the next two years before reaching a final investment decision.

SULPHUR

Net sulphur reserves remained unchanged during 2005 due to reserves additions principally at Tay River, offset by current year production.

NATURAL GAS LIQUIDS								BITUMEN									SULPHUR
(millions of barrels)								(millions of barrels)									(millions of long tons)
2005		2004			2003			2005			2004			2003			2005			2004			2003
62			77			105			—			167			183			14			13			14
3			(4	)		(17	)		31			(164	)		(13	)		—			1			1
—			1			1			—			—			—			2			2			—
—			—			1			—			—			—			—			—			—
—			—			—			—			—			—			—			—			—
—			—			—			—			—			—			—			—			—
(11	)		(12	)		(13	)		(3	)		(3	)		(3	)		(2	)		(2	)		(2	)
54			62			77			28			—			167			14			14			13
44			54			69			11			—			27			10			10			12
71			78			95			28			—			182			14			14			15
57			68			85			11			—			27			10			11			14

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      87

SUPPLEMENTAL OIL SANDS DISCLOSURE

Year ended December 31 (unaudited)

PRODUCTION 1 (thousands of barrels/day)	2005		2004		2003
Bitumen
Gross		95.9		81.3		46.3
Net		95.0		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.

SALES 2 (thousands of barrels/day)	2005		2004		2003
Synthetic crude sales excluding blend stocks		99.4		83.7		46.1
Purchased upgrader blend stocks		37.1		38.2		17.7
Total synthetic crude sales		136.5		121.9		63.8

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

UNIT COSTS 3 ($/bbl)	2005		2004		2003
Cash operating cost — excluding natural gas		17.08		17.79		—
Cash operating cost — natural gas		6.08		5.53		—
Total cash operating cost		23.16		23.32		—
Depreciation, depletion and amortization		5.77		5.59		—
Total unit cost		28.93		28.91		—

3	Total unit cost, including unit cash operating and unit depreciation, depletion and amortization (DD&A) costs, does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and therefore may not be comparable with the calculation of similar measures for other companies.
	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 oil sales excluding blend stocks. Cash cost items included in COGS in 2005 were $201 million.
	Unit DD&A cost for Oil Sands is defined as: DD&A cost divided by synthetic crude oil sales excluding blend stocks. Unit DD&A cost includes preproduction costs, which were written off over the first three years of the project life (2003-2005) and account for $1.59 per barrel of the total unit DD&A cost in 2005.

PRICES ($/bbl)	2005		2004		2003
Synthetic crude average plant gate price		57.55		44.67		34.18

88      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 starting 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 began, as well as reserves located immediately to the east of the Muskeg River.

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 estimates include only the portion of Lease 13 that represents the development area approved by the Alberta Energy and Utilities Board. The reserves estimates are based on 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 of less than 350 metres. Probable reserves of bitumen are based on drill hole spacing of 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 commercial mining, bitumen extraction and froth cleanup technology. For 2005, a technical revision was made to classify proved reserves using a 12.25-hectare area of influence derived from the 350-metre drill hole spacing and, during the year, an additional 268 core holes were drilled. This has resulted in the reclassification of 222 million barrels of gross reserves to proved from probable.

Production accounted for the only change made to the total proved and probable reserves in 2005. Shell’s 60 per cent interest in the total reserves amounts to 808 million barrels of proved and 128 million barrels of probable reserves. This estimate is before deduction of royalty barrels. Under the Oil Sands Royalty Regulation 1997, 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. Using 2005
year-end pricing, Shell’s net reserves would be 746 million barrels of proved and 119 million barrels of probable reserves.

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 FASB and the SEC. If Shell 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)
	2005			2004			2003
Gross proved reserves
Beginning of year		621			651			600
Revisions of previous estimates		222			—			—
Additions		—			—			68
Production		(35	)		(30	)		(17	)
End of year		808			621			651
Gross probable reserves
Beginning of year		350			350			300
Revisions of previous estimates		(222	)		—			—
Additions		—			—			50
End of year		128			350			350
Gross proved and probable reserves		936			971			1 001
Net proved reserves		746			615			572
Net probable reserves		119			347			307
Net proved and probable reserves		865			962			879

Proved reserves — the quantity of proved reserves is computed from dimensions revealed in outcrops, trenches, workings or drill holes. Grade and/or quality are computed from the results of detailed sampling. The sites for inspection, sampling and measurement are spaced so closely and the geological character is so well defined that size, shape, depth and mineral content of the reserves are well established.

Probable reserves — the quantity and grade and/or quality of probable reserves are computed from information similar to that used for proved reserves. However, the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. Although the degree of assurance is less than that for proved reserves, it is sufficient to assume continuity between points of observation.

SUPPLEMENTAL OIL SANDS DISCLOSURE SHELL CANADA LIMITED      89

SUPPLEMENTAL LANDHOLDINGS DISCLOSURE

As at December 31 (unaudited)

	UNDEVELOPED								DEVELOPED
	2005					2004				2005			2004
(thousands of acres)	Gross		Net		Gross		Net		Gross		Net		Gross		Net
Onshore within the provinces
Conventional oil and gas:
Alberta		294		151		331		173		551		388		552		384
British Columbia		316		221		286		220		—		—		—		—
Quebec		5		—		5		—		—		—		—		—
Coal bed methane:
Alberta		24		24		24		24		—		—		—		—
British Columbia		1 043		1 043		1 018		1 018		—		—		—		—
Basin-centred gas
Alberta		118		114		42		38		—		—		—		—
British Columbia		70		70		—		—		—		—		—		—
Bitumen:
— mining 1		199		189		120		105		11		7		11		7
— in situ		87		87		85		85		18		18		7		7
		2 156		1 899		1 911		1 663		580		413		570		398
Canada Lands
Offshore Nova Scotia		517		198		840		322		109		34		109		34
Orphan Basin		5 249		1 050		—		—		—		—		—		—
Northwest Territories		65		55		262		245		—		—		—		—
Offshore West coast		13 590		12 845		13 590		12 845		—		—		—		—
Nunavut Territory		5 801		3 100		5 801		3 100		—		—		—		—
Beaver River		1		—		—		—		—		—		—		—
		25 223		17 248		20 493		16 512		109		34		109		34
Total		27 379		19 147		22 404		18 175		689		447		679		432

¹  Mining net undeveloped landholdings includes options by other parties not yet exercised.

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.

90       SHELL CANADA LIMITED SUPPLEMENTAL LANDHOLDINGS DISCLOSURE

SUPPLEMENTARY FINANCIAL DATA AND QUARTERLY STOCK-TRADING INFORMATION

Year ended December 31 (unaudited)

DATA PER COMMON SHARE (dollars except as noted)	2005		2004		2003
Earnings — basic		2.44		1.56		0.98
Earnings — diluted		2.41		1.55		0.97
Dividends		0.367		0.313		0.273
Common shareholders’ equity		9.96		7.90		6.70
Common shares outstanding at year-end (millions)		825		826		826
Registered shareholders (number at year-end)		2 361		2 454		2 554

On June 21, 2005, the common shares of the Corporation were split on a three-for-one basis for shareholders of record on June 23, 2005. Common share data and per share information have been restated to reflect the impact of the share split.

RATIOS	2005		2004		2003
Return on average common shareholders’ equity (%)1		27.3		21.3		15.4
Return on average capital employed (%)2		26.8		19.9		13.1
Common share dividends as percentage of earnings3		15.0		20.1		27.9
Price to earnings ratio4		17.2		17.1		20.8
Current assets to current liabilities		1.3		0.9		0.5
Reinvestment ratio (%)5		56.1		44.7		41.9
Total debt as percentage of capital employed 6		2.5		2.1		13.8
Debt to cash flow (%)7		6.9		6.4		52.0

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	Capital, exploration, predevelopment and investment expenditures divided by cash flow from operations (During 2005, capital, exploration and predevelopment was reclassified on the Consolidated Statement of Cash Flows. See Note 1 to the consolidated financial statements).
6	Total debt divided by total debt plus equity.
7	Total debt divided by cash flow from operations. (During 2005, capital, exploration and predevelopment was reclassified on the Consolidated Statement of Cash Flows. See Note 1 to the consolidated financial statements).

EMPLOYEES	2005		2004		2003
Employees (number at year-end)		4 564		4 003		3 850

STOCK-TRADING INFORMATION	2005										2004
			Quarter						Total				Quarter						Total
	1st		2nd		3rd		4th		Year		1st		2nd		3rd		4th		Year
Share prices (dollars)1
High		31.67		34.39		41.62		42.35		42.35		21.95		22.13		23.15		26.68		26.68
Low		25.11		26.84		33.30		32.45		25.11		19.23		20.44		20.68		22.83		19.23
Close (end of period)		29.00		32.89		40.65		42.05		42.05		20.68		21.50		23.00		26.66		26.66
Shares traded (thousands) 1		32 017		21 961		22 362		23 719		100 059		22 177		19 550		17 130		21 213		80 070

¹ Toronto Stock Exchange quotations.

SUPPLEMENTARY FINANCIAL DATA AND QUARTERLY STOCK-TRADING INFORMATION SHELL CANADA LIMITED     91

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

Brian E. Straub
Senior Vice President,
Oil Sands

H. Ian Kilgour
Senior Vice President,
Exploration & Production

David M. Weston
Senior Vice President,
Oil Products

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

R. David Fulton
Vice President,
Human Resources

TREASURER
Matthew B. Haney

CONTROLLER
Donna Tarka

Derek H. Burney, O.C. ^{(2) (3) (4) (5)}
Ottawa, Ontario

Lead Director, Chair of the Nominating and Governance Committee

On the board of directors since April 25, 2001.

Since 2004, Mr. Burney has been Chairman of New Brunswick Power Corporation, a Crown corporation. From 1999 to 2004, Mr. Burney served as President and Chief Executive Officer of CAE Inc., a provider of technologies used in the aerospace and defence sectors.

Mr. Burney also serves as a director of TransCanada Corporation, TransCanada Pipelines Limited, CanWest MediaWorks Inc. and CanWest Global Communications Corp. He is Chairman of the Confederation College Foundation, an advisory board member of Idelix Software Inc. and a Fellow at the Canadian Defense and Foreign Affairs Institute. He is a Senior Distinguished Fellow and Visiting Professor of Carleton University.

Ida J. Goodreau ^{(1) (3) (5)}
Vancouver, British Columbia

On the board of directors since April 24, 2003.

Since 2002, Ms. Goodreau has been President and Chief Executive Officer of the Vancouver Coastal Health Authority, which 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.

From 2000 to 2002, Ms. Goodreau was Senior Vice President, Global Optimization and Human Resources, Norske Skog Industries.

Member of the:
(1)	Audit Committee
(2)	Nominating and Governance Committee
(3)	Management Resources and Compensation Committee and Pension Subcommittee
(4)	Reserves Committee
(5)	Health, Safety, Environment & Social Responsibility Committee

92     SHELL CANADA LIMITED CORPORATE DIRECTORY AND BOARD OF DIRECTORS

Kerry L. Hawkins ^{(1) (2) (4) (5)}
Winnipeg, Manitoba

Chair of the Audit Committee
On the board of directors since October 1, 1997.

Mr. Hawkins was President of Cargill Limited, a Canadian agricultural company, from 1982 until his retirement at the end of November 2005.

Mr. Hawkins also serves as a director of TransCanada PipeLines Limited, TransCanada Corporation, Hudson’s Bay Company and Nova Chemicals Corporation.

David W. Kerr ^{(1) (2) (4) (5)}
Toronto, Ontario

Chair of the Reserves Committee
On the board of directors since April 24, 2003.

Since June 2002, Mr. Kerr has been Chairman and a director of Falconbridge Limited (previously Noranda Inc.), a leading international mining and metals company. From 2001 to 2002, Mr. Kerr was Chairman and Chief Executive Officer of Falconbridge Limited and from 1990 to 2001, he served as President and Chief Executive Officer of Falconbridge Limited.

Mr. Kerr also serves as a director of Sun Life Financial Inc. and Brookfield Asset Management Inc.

W. Adrian Loader
Guildford, England

On the board of directors since September 27, 2003.

Since July 2005, Mr. Loader has served as Director, Strategy and Business Development for Royal Dutch Shell plc and was previously Director, Strategic Planning, Sustainable Development and External Affairs for Shell International Limited since June 2003. He was President, Shell Oil Products Europe from 1999 until June 2003. The main businesses of all Shell Group companies are oil, natural gas, chemicals and renewable resources.

Mr. Loader also serves as a director of other Shell Group companies and Alliance Unichem Plc.

CORPORATE DIRECTORY AND BOARD OF DIRECTORS SHELL CANADA LIMITED     93

CORPORATE DIRECTORY AND BOARD OF DIRECTORS (continued)

Clive Mather
Calgary, Alberta

On the board of directors since August 1, 2004.

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 Limited from 2002 to 2004. Before that, he was Special Advisor to the Chairman of the Committee of Managing Directors of Shell International Limited. After serving as Director, International, of Shell International Limited, Mr. Mather was Chief Executive Officer of Shell Services International Ltd. from 1999 to 2001.

Mr. Mather is a director and President of Shell Investments Limited and a director of Shell Chemicals Canada Ltd., Shell Canada Products Limited and Shell Canada OP Inc.

Ronald W. Osborne ^{(1) (3) (4)}
Toronto, Ontario

Chair of the Management Resources and
Compensation Committee and Pension
Subcommittee

On the board of directors since April 25, 2001.

Since May 2005, Mr. Osborne has been Chairman of Sun Life Financial Inc. and its wholly owned subsidiary Sun Life Assurance Company of Canada. From 1999 to 2003, Mr. Osborne was President and Chief Executive Officer of Ontario Power Generation Inc., which owns the power generation assets supplying approximately 85 per cent of all electricity consumed in Ontario.

Mr. Osborne also serves as a director of Torstar Corporation, St. Lawrence Cement Group Inc., Massachusetts Financial Services Company, Four Seasons Hotels Inc., Nortel Networks Corporation, Nortel Networks Limited and as trustee of RioCan Real Estate Investment Trust.

Rob Routs
The Hague, the Netherlands

Chair of the Meetings of the Board

On the board of directors since April 29, 2005.

Mr. Routs is an executive director of Royal Dutch Shell plc and was previously a managing director of the Royal/Dutch 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 the Shell Group in the United States. He was President and Chief Executive Officer of Equilon Enterprises LLC from 2000 to 2002 and, before that, Mr. Routs was Head of Shell International Resource and Technical Services Group (Shell Global Solutions).

Member of the:
(1)	Audit Committee
(2)	Nominating and Governance Committee
(3)	Management Resources and Compensation Committee and Pension Subcommittee
(4)	Reserves Committee
(5)	Health, Safety, Environment & Social Responsibility Committee

94     SHELL CANADA LIMITED CORPORATE DIRECTORY AND BOARD OF DIRECTORS

Raymond Royer, O.C. ^{(1) (3)}

Île-Bizard, Quebec

On the board of directors since April 26, 2000.

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.

Nancy C. Southern ^{(2) (3) (5)}
Calgary, Alberta

Chair of the Health, Safety, Environment & Social Responsibility Committee

On the board of directors since April 25, 2001.

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 Akita Drilling Ltd. and is Executive Vice President of Spruce Meadows.

CORPORATE DIRECTORY AND BOARD OF DIRECTORS SHELL CANADA LIMITED     95

CORPORATE GOVERNANCE PRACTICES

Shell Canada believes that sound corporate governance practices contribute to the effective management of the Company and the achievement of its goals.

The Company’s corporate governance practices are aligned with the standards of the Canadian Securities Administrators set forth in National Instrument 58-101 Disclosure of Corporate Governance Practices and National Policy 58-201 Corporate Governance Guidelines. A complete description of the Company’s approach to corporate governance is contained in its Statement of Corporate Governance Practices attached as Appendix 2 to the Management Proxy Circular dated March 10, 2006.

Key Practices

Key aspects of Shell Canada’s approach to corporate governance are:

>	appointment of a Lead Director (the board of directors appointed its first Lead Director in 2005);
>	an independence policy for directors;
>	100 per cent independence of all five committees of the board (no officer or employee representing the Company or its majority shareholder may sit on these committees);
>	sessions of the board and committees held without management present and separate meetings of the independent directors held in connection with all board meetings;
>	written charters for the board and committees;
>	written position descriptions for the Chairman of the Meetings of the Board, the Lead Director, the directors and the chairs of the committees;
>	requirement for all independent directors and Shell Canada’s President and Chief Executive Officer to hold shares in the Company equal to three years’ board annual retainer fees (currently $50,000 per year) after five years of board service;
>	regular evaluations by the board of its effectiveness;

96     SHELL CANADA LIMITED CORPORATE GOVERNANCE PRACTICES

On a visit to the Montreal East Refinery (MER) in August 2005 are pictured, left to right: Bob Baird, MER Refinery Manager; Kerry Hawkins, director and Chair of the Audit Committee; Rob Routs, director and Chair of the Meetings of the Board; Nancy Southern, director and Chair of the Health, Safety, Environment & Social Responsibility Committee; Clive Mather, director and President & CEO; Debbie Baluch, ultra-low-sulphur diesel (USLD) Project Engineer; Robert Guertin, USLD Project Coordinator; and Réal Gagnon, USLD Project Manager.

>	orientation and continuous education in the businesses of Shell Canada available to all members of the board;
>	board approval of Shell Canada’s strategic plans;
>	annual review of the adequacy and form of compensation of directors (including minimum share ownership requirements) by the Nominating and Governance Committee;
>	three financial experts on the Audit Committee;
>	annual review of succession planning and talent by the Management Resources and Compensation Committee;
>	annual review of the performance of Shell Canada’s Chief Executive Officer and annual approval of his and other senior executives’ compensation by the Management Resources and Compensation Committee;
>	application of a Code of Ethics and Statement of General Business Principles to all directors, officers and employees;
>	a Corporate Disclosure Policy which describes and governs the Company’s corporate disclosure practices;
>	procedures for reporting accounting or auditing concerns or complaints to the Audit Committee; and
>	systems that allow shareholders, employees and other members of the public to communicate with the board of directors, management, the Chief Compliance Officer or the Ombuds office.

CORPORATE GOVERNANCE PRACTICES SHELL CANADA LIMITED     97

CORPORATE GOVERNANCE PRACTICES (continued)

Board of Directors

The board of directors is responsible for overseeing the business and affairs of Shell Canada 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.

The board is composed of 10 directors. Seven of the directors are independent and have no material relationship with either the Company or its majority shareholder. The board reviews its composition and size once a year and 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 2006.

The board holds six regularly scheduled meetings each year, plus special board meetings as required from time to time. Shell Canada’s bylaws state that the quorum for any meeting of the board shall be two directors.

Committees

The board of directors has established the following committees:

>	Audit Committee
>	Reserves Committee
>	Management Resources and Compensation Committee and Pension Subcommittee
>	Nominating and Governance Committee
>	Health, Safety, Environment & Social Responsibility Committee

Only independent directors sit on these committees. Each committee member knows the mandate of the committee on which they serve and conducts activities that are consistent with and fulfill the committee’s mandate.

The charters of the board and its committees can be found on the Company’s website at www.shell.ca.

Selection of Directors

The shareholders of Shell Canada elect the board of directors each year at the annual meeting of shareholders. The Nominating and Governance Committee recommends new appointments and reappointments to the board for consideration by the shareholders.

A director must retire at the next annual meeting of shareholders following his or her 70th birthday.

98   SHELL CANADA LIMITED CORPORATE GOVERNANCE PRACTICES

Chairman of the Meetings of the Board and Lead Director

Mr. Robert J. Routs serves as Chairman of the Meetings of the Board. Mr. Routs is a member of the executive committee of Royal Dutch Shell plc (the Company’s majority shareholder) and therefore is not an independent director. To complement this role, the board appointed Mr. Derek H. Burney, an independent director, as Lead Director in March 2005.

The Chairman of the Meetings of the Board is expected to:

>	consult with the President and CEO and the Secretary of the Company to determine the dates and locations of meetings of the board and the shareholders;
>	require the board to meet at least six times annually and as many more times as necessary for the board to carry out its duties and responsibilities effectively;
>	ensure that all the required business is brought before a meeting of shareholders;
>	in consultation with the President and CEO and the Secretary of the Company, review the meeting agendas to ensure all required business is brought before the board to enable the board to carry out its duties and responsibilities;
>	attend all meetings of the board and the shareholders except as otherwise authorized by the bylaws;
>	ensure the board has the opportunity to meet separately without management present at all meetings;
>	provide leadership to enable the board to act as an effective team in carrying out its duties and responsibilities; and
>	advise, counsel and mentor the President and CEO and fellow members of the board.

The Lead Director is expected to:

>	ensure that the board functions independently of management of the Company;
>	ensure that independent directors have adequate opportunities to meet without management present;
>	chair separate meetings of the independent directors;
>	represent the independent directors in communications with shareholders, as appropriate;
>	be available to directors who have concerns that cannot be addressed by the Chairman of the Meetings of the Board; and
>	perform such other functions as may be reasonably requested by the board or the Chairman of the Meetings of the Board.

CORPORATE GOVERNANCE PRACTICES SHELL CANADA LIMITED   99

CORPORATE GOVERNANCE PRACTICES (continued)

Board Evaluations

The Chairman of the Nominating and Governance Committee conducts an annual assessment of the board, individual directors, the Chairman of the Meetings of the Board and the chairs of the committees. He then prepares a summary report for the board. The assessment includes:

>	measuring performance against key responsibilities, including strategy, succession planning, performance management, compliance, financial oversight and risk management; and
>	assessing board resources and capabilities, including knowledge, contribution of fellow directors, information, authority and time.

Shell Canada believes this annual assessment is a constructive means to assess the effectiveness of the board and to formulate recommendations for improvement.

Director Education

New board members receive a minimum two-day orientation that includes a tour of some of Shell Canada’s major operating facilities. All new directors receive a manual containing the charters of the board and its committees and other relevant corporate, policy and business information. The chairs of the committees 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 Company’s business.

Shell Canada offers a continuing education program for its directors, which focuses on Shell Canada’s business and corporate governance practices. Some aspects of Shell Canada’s continuing education program for directors include:

>	special sessions conducted regularly by members of senior management on their individual areas of expertise;
>	membership for each director in an organization dedicated to improving the profession of directorship in Canada; and
>	tours of Shell Canada’s major operating facilities and discussions with the President and CEO regarding areas of specific interest.

Project Coordinator Robert Guertin accompanied Shell director Nancy Southern on the construction site of the ultra-low-sulphur diesel unit at the Montreal East Refinery.

100   SHELL CANADA LIMITED CORPORATE GOVERNANCE PRACTICES

Meeting Procedures

The President and CEO establishes the agenda for each board meeting in collaboration with the Chairman of the Meetings of the Board. All meeting materials for both the board and the committees are distributed approximately one week in advance of the respective meetings to provide the board with sufficient time to review and prepare for the directors and committee meetings.

Access to Management and Outside Advisors

All directors have access to management of the Company. Directors may hire outside advisors at the Company’s expense, subject to the approval of the Nominating and Governance Committee. Each committee is authorized to retain outside advisors.

Communication with Shareholders

Any shareholder is invited to contact the board by e-mail at
corporatesecretary@shell.com or in writing to:

Board of Directors
Shell Canada Limited
Shell Centre
6th Floor, 400 – 4th Avenue S.W.
Calgary, Alberta, Canada T2P 0J4
Attention: Secretary

The Secretary will review each communication and determine the appropriate action to be taken with the board or any of its committees.

CORPORATE GOVERNANCE PRACTICES SHELL CANADA LIMITED   101

INVESTOR INFORMATION

SHELL CANADA LIMITED

(incorporated under the laws of Canada)

HEAD OFFICE

Shell Centre
400 – 4th Avenue S.W.
Calgary, Alberta, Canada 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 28, 2006, 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 2005 SUSTAINABLE DEVELOPMENT REPORT

The Corporation’s Annual Information Form for 2005 and the 2005 Sustainable Development Report are available to shareholders on request from the Corporation’s Secretary at Shell Canada’s head office.

OWNERSHIP AND VOTING RIGHTS OF SHELL CANADA LIMITED

(as at December 31, 2005)

Shell Canada is a Canadian corporation. Ownership of the Company is divided between public shareholders (approximately 22 per cent) and Shell Investments Limited (approximately 78 per cent). Shell Investments Limited is owned by Shell Petroleum N.V., which, in turn, is owned by Royal Dutch Shell plc, an English company with headquarters in 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

102   SHELL CANADA LIMITED INVESTOR INFORMATION

This report was printed in Canada by Sundog Printing using FSC Certified paper for the text pages. The FSC paper, paper mills and printer are all Forest Stewardship Council certified, which is an international network that promotes environmentally appropriate and socially beneficial management of the world’s forests. The report was produced in a printing facility that results in nearly zero volatile organic compound (VOC) emissions. Sundog Printing’s certification number is SW-COC-1715.

This annual report has been printed using vegetable-based inks. The cover paper is recyclable. The text paper is FSC certified. The financial pages contain 30% pcw fibre and is FSC certified. The transparent pages are not recyclable.

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

PRINTED IN CANADA

EX-99.C

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 the Sheraton Suites Eau Claire, 255 Barclay Parade S.W., Calgary, Alberta, on the 28th day of April, 2006, 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, 2005 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 provide for the appointment of directors; and
(5)	to transact such 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, 2006.

BY ORDER OF THE BOARD

Shannon L. Cosmescu

Acting Corporate 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 28, 2006. 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

WHAT’S INSIDE?

PART I: Voting and Proxies: Questions and Answers			4
PART II: Business of the Meeting			7
	1) Receipt of Financial Statements for the Year Ended December 31, 2005 and Auditors’ Report		7
	2) Election of Directors		7
		The Proposed Nominees	7
		Other Publicly Traded Company Directorships/ Committee Appointments	15
		Interlocking Relationships	17
		Compensation of Directors	17
		Directors’ Compensation Plans	18
		Director Share Ownership Requirements	19
		Record of Director Attendance	20
		Summary of Meetings Held in 2005	20
		Directors’ and Officers’ Liability Insurance	21
	3) Appointment of Auditors		21
	4) Articles of Amendment		22
PART III: Report of Committees			23
	Report of the Audit Committee		23
	Report of the Reserves Committee		25
	Report of the Nominating and Governance Committee		27
	Report of the Health, Safety, Environment & Social Responsibility Committee		28
	Report of the Management Resources and Compensation Committee		29
PART IV: The Corporation’s Executive Compensation Program			32
	Management Resources and Compensation Committee		32
		Composition	32
		Mandate of the Management Resources and Compensation Committee	32
		Executive Compensation Consulting Arrangement	33
	Report on Executive Compensation		33
		Compensation Philosophy	33
		Compensation Summary	34
		Share Ownership Guidelines	37
		Senior Management Equity Ownership	38
		Executive Deferred Share Unit Plan	38
		Employee Share Purchase Plan	38
		Compensation of the President and Chief Executive Officer	39
		Summary Compensation Table	42
	Options and Share Appreciation Rights		44
	Retirement and Savings Program		46
PART V: Other Information			48
	Interest of Informed Persons in Material Transactions		48
	Five Year Total Shareholder Return Comparison		49
	Statement of Corporate Governance Practices		49
	Shareholder Proposals to be Submitted to 2007 Annual Meeting of Shareholders		49
	Availability of Documents		49
	Directors’ Approval		50
Appendix 1: Board and Committee Mandates			51
Appendix 2: Statement of Corporate Governance Practices			56
Appendix 3: Independence Standards			70
Appendix 4: Glossary of Terms and Commonly Used Acronyms			72

Invitation to Shareholders

On behalf of our Board of Directors, senior management team and employees, we invite you to join us at Shell Canada Limited’s Annual and Special Meeting of Shareholders. This year, the meeting will be held:

Date:	Friday, April 28, 2006
Time:	11:00 a.m.
Place:	Wildrose Ballroom
	Sheraton Suites Eau Claire
	255 Barclay Parade S.W.
	Calgary, Alberta

At the formal meeting, shareholders of the Corporation will be asked to approve the business items identified in the Notice of the Meeting and this Management Proxy Circular. Following the formal meeting, we will update you on the Corporation’s financial situation and strategic direction and will take your questions.

Your vote is very important to us and we encourage you to participate either in person or by proxy.

We look forward to seeing you there.

Sincerely,

Clive Mather
President and
Chief Executive Officer
Rob Routs
Chairman of the Meetings
of the Board
Derek H. Burney, O.C.
Lead Director

-3-

PART I: 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 these questions and answers, please contact our transfer agent, CIBC Mellon Trust Company, by mail at:

           CIBC Mellon Trust Company

           PO 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

For your convenience we have included a Glossary of Terms and Commonly Used Acronyms as Appendix 4 of this Circular. You may wish to review the Glossary before reading the contents of this Management Proxy Circular.

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, 2006, the record date for the Meeting.

The list of shareholders entitled to vote at the meeting will be prepared as of the close of business on March 10, 2006. This list will be available for inspection after March 13, 2006 at the Corporation’s registered office and will be available at the Meeting.

Q.  What am I voting on?

A. You are voting on the following matters:

(i)	the election of directors;
(ii)	the appointment of auditors;
(iii)	the amendment of the Articles of the Corporation to provide for the appointment of directors; and
(iv)	any other business that may be properly brought before the Meeting or any adjournment of the Meeting 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) and (ii) 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 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

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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 28, 2006.

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 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 Cathy L. Williams and Shannon L. Cosmescu 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 himself or herself 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 provide for the appointment of directors; and

• FOR management’s proposals generally.

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 28, 2006.

Q. What is the deadline for submitting my proxy?

A. To be effective your proxy must be received by CIBC Mellon before 11:00 a.m. (MST) on April 28, 2006.

Q.  Who counts the votes?

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

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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 beneficial 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 fax at (403) 691-3194 at any time up to and including, the last business day preceding the day of the Meeting or any adjournment thereof; (ii) with 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 beneficial 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 a meeting.

Q. How many shares are eligible to vote?

A. As of March 10, 2006, the Corporation’s outstanding voting shares, each of which carries the right to one vote per share, consist of 825,132,812 Common Shares and 100 4% Cumulative Redeemable Preference Shares. The Corporation’s Common Shares are traded on the Toronto Stock Exchange under the symbol “SHC”.

Q. Who are the shareholders of Shell Canada?

A. Ownership of Shell Canada Limited is divided between public shareholders (approximately 22 per cent of the Common Shares) and Shell Investments Limited (approximately 78 per cent of the Common Shares or 643,603,593 shares of that class and 100 per cent of the 4% Cumulative Redeemable Preference Shares).

Shell Investments Limited is owned by Shell Petroleum N.V. which, in turn, is owned by Royal Dutch Shell plc (“RDS”), an English company with headquarters in the Netherlands.

To the knowledge of the directors and officers of the Corporation, no other person beneficially owns directly, 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.

This Management Proxy Circular was first mailed to shareholders on or about March 23, 2006.

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PART II: Business of the Meeting

At Shell Canada’s 2006 Annual and Special Meeting, four items of business will be addressed.

1)  Receipt of Financial Statements for the Year Ended December 31, 2005 and Auditors’ Report

The comparative consolidated financial statements of the Corporation and its subsidiaries for the year ended December 31, 2005, and the report of the auditors’ thereon, are contained in the 2005 Annual Report of the Corporation. Shareholders who have requested a copy of the Annual Report will receive one by mail. If you did not request a copy, you may view the Annual Report online at www.shell.ca or under the Corporation’s profile at www.sedar.com or you may obtain an Annual Report upon request by writing to the Corporation’s Secretary at the following address:

Shell Canada Limited

c/o Secretary

P.O. Box 100 Station M

400 – 4th Avenue SW

Calgary, Alberta T2P 2H5

The Corporation’s Secretary may also be e-mailed at corporatesecretary@shell.com.

2)  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 eight 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 ten. 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 will have the right to vote for other nominees in accordance with their best judgment.

The Proposed Nominees

The following pages set forth information concerning each person nominated by management for election as a director. W. Adrian Loader, 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 Marvin E. Odum who will be standing for election at the Meeting.

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Unless otherwise instructed, the persons designated in the enclosed form of proxy intend to vote FOR the nominees listed below.

Derek H. Burney, O.C.
Age: 66
Ottawa, Ontario 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.

From 1999 to 2004, Mr. Burney served as President and Chief Executive Officer of CAE Inc. 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 TransCanada Corporation, TransCanada Pipelines Limited, CanWest Global Communications Corp. and CanWest MediaWorks Inc. He is Chairman of the Confederation College Foundation, an Advisory Board Member of Idelix Software Inc. and a Fellow at the Canadian Defence and Foreign Affairs Institute. Mr. Burney is a Visiting Professor and Senior Distinguished Fellow of Carleton University.

Shell Canada Board Details:
•   Director since April 25, 2001
•   Lead Director
•   Independent
•   Chair of the Nominating and Governance Committee
•   Member of the Management Resources and Compensation Committee, the Pension Subcommittee, the Reserves Committee and the Health, Safety, Environment & Social Responsibility Committee
•   Meets share ownership guidelines

Common	Deferred Share	Shares of RDS
Shares	Units (“DSUs”)	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
12,846	12,110.21	None	None

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Ida J. Goodreau
Age: 54
Vancouver, British Columbia 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 served as a director of Terasen Inc. from November, 2002 to December, 2005.

From 2000 to 2002, Ms. Goodreau was Senior Vice-President of Global Optimization & Human Resources, Norske Skog Industries.

Shell Canada Board Details:
•   Director since April 24, 2003
•   Independent
•   Member of the Audit Committee, the Management Resources and Compensation Committee, the Pension Subcommittee and the Health, Safety, Environment & Social Responsibility Committee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
2,817	5,047.55	None	None

Kerry L. Hawkins
Age: 65
Winnipeg, Manitoba Mr. Hawkins was President of Cargill Limited from 1982 until his retirement at the end of November, 2005. 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.

Shell Canada Board Details:
•   Director since October 1, 1997
•   Independent
•   Chair of the Audit Committee
•   Member of the Nominating and Governance Committee, the Reserves Committee and the Health, Safety, Environment & Social Responsibility Committee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
12,939	12,682.62	None	None

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David W. Kerr
Age: 62
Toronto, Ontario Mr. Kerr has been Chairman and a director of Falconbridge Limited (previously, Noranda Inc.) since June, 2002. Falconbridge Limited 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.

From 2001 to 2002 Mr. Kerr was Chairman and Chief Executive Officer of Falconbridge Limited, and from 1990 to 2001 Mr. Kerr served as President and Chief Executive Officer of Falconbridge Limited.

Mr. Kerr also serves as a director Sun Life Financial Inc. and Brookfield Asset Management Inc.

Shell Canada Board Details:
•   Director since April 24, 2003
•   Independent
•   Chair of the Reserves Committee
•   Member of the Audit Committee, the Nominating and Governance Committee and the Health, Safety, Environment & Social Responsibility Committee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
11,000	4,666.52	None	287

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Clive Mather
Age: 58
Calgary, Alberta Mr. Mather has served as President and Chief Executive Officer of Shell Canada Limited since August, 2004.

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 also currently a director and the President of Shell Investments Limited and a director of Shell Chemicals Canada Ltd., Shell Canada Products Limited and Shell Canada OP Inc.

Mr. Mather served on the Board of Directors of Placer Dome Inc. from April, 2005 to January, 2006.

Shell Canada Board Details:
•   Director since August 1, 2004
•   Non-Independent
•   Meets director share ownership guidelines

	DSUs of the	Shares of RDS
Common	Corporation	Class “A” Shares	Class “B” Shares
Shares	(under the
of the	Executive
Corporation	DSU Plan)
1,700	21,702.62	None	252

Mr. Odum has been Executive Vice President – Americas for Shell Exploration and Production since May, 2005. Prior to that, from May, 2003 to May, 2005, Mr. Odum was Chief Executive Officer of InterGen, a global power generation company active in 13 countries. Mr. Odum was Shell Gas and Power Director for the Americas, based in London from 2001 to 2003.

Shell Canada Board Details:
•   Director Nominee
•   Non-Independent
•   Does not meet share ownership guidelines. As an employee of an affiliate of RDS, Mr. Odum is not subject to share ownership requirements.

Marvin E. Odum
Age: 48	Common		Shares of RDS
Houston, Texas	Shares	DSUs	Class “A” Shares	Class “B” Shares
	of the	of the
	Corporation	Corporation
	None	None	3,788	None

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Ronald W. Osborne
Age: 59
Toronto, Ontario Since May, 2005, Mr. Osborne has been Chairman of the Board of Sun Life Financial Inc. and its wholly owned subsidiary, Sun Life Assurance Company of Canada. From 1999 to 2003, Mr. Osborne was President and Chief Executive Officer of Ontario Power Generation Inc. which owns the power generation assets supplying approximately 85 per cent of all electricity consumed in Ontario.

Mr. Osborne is also a director of Torstar Corporation, St. Lawrence Cement Group Inc., Massachusetts Financial Services Company, Four Seasons Hotels Inc., Nortel Networks Corporation and Nortel Networks Limited, 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.

Shell Canada Board Details:
•   Director since April 25, 2001
•   Independent
•   Chair of the Management Resources and Compensation Committee and the Pension Subcommittee
•   Member of the Audit Committee and the Reserves Committee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
7,895	991.55	None	None

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Rob J. Routs
Age: 59
The Hague, The Netherlands Mr. Routs is currently an Executive Director of Royal Dutch Shell plc and was previously a 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 the Shell Group 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).

Shell Canada Board Details:
•   Director since April 29, 2005
•   Chairman of the Meetings of the Board
•   Non-Independent
•   Does not meet share ownership guidelines. As an employee of an affiliate of RDS, Mr. Routs is not subject to share ownership requirements.

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
1,509	None	1,000	None

Raymond Royer, O.C.
Age: 67
Ile Bizard, Quebec 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.

Shell Canada Board Details:
•   Director since April 26, 2000
•   Independent
•   Member of the Audit Committee, the Management Resources and Compensation Committee and the Pension Subcommittee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
28,556	None	None	None

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Nancy C. Southern
Age: 49
Calgary, Alberta Ms. Southern has been President and Chief Executive Officer of ATCO Ltd. and Canadian Utilities Limited since January, 2003. 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.

Shell Canada Board Details:
•   Director since April 25, 2001
•   Independent
•   Chair of the Health, Safety, Environment & Social Responsibility Committee
•   Member of the Management Resources and Compensation Committee, the Pension Subcommittee and the Nominating and Governance Committee
•   Meets share ownership guidelines

Common		Shares of RDS
Shares	DSUs	Class “A” Shares	Class “B” Shares
of the	of the
Corporation	Corporation
10,914	1,909.08	None	None

As of March 10, 2006, 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, DSUs of the Corporation and Class “A” and Class “B” shares of RDS set forth in the following table. None of these individuals own any voting shares in any of the Corporation’s subsidiaries.

	Common Shares				Shares of RDS
Directors and Nominees as a	of the		DSUs of the
Group	Corporation		Corporation		Class “A” Shares		Class “B” Shares
		90,176		59,110.15		None		539

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Other Publicly Traded Company Directorships/ Committee Appointments

The following table lists the directors of the Corporation and the other publicly traded companies for which they serve as a director, together with board committee memberships as at December 31, 2005.

	Other Publicly Traded Company
Director	Directorships	Committee Memberships
Derek H. Burney	TransCanada Pipelines Limited	Governance Committee
	TransCanada Corporation	Governance Committee
	CanWest Global Communications Corp.	Governance Committee Human Resources Committee
	CanWest MediaWorks Inc.	Governance Committee Human Resources Committee
Ida J. Goodreau	Terasen Inc. (resigned from Terasen Inc.’s board in December, 2005)	Management Resources Committee Health, Safety and Environment Committee
Kerry L. Hawkins	TransCanada Pipelines Limited	Human Resources Committee Health, Safety and Environment Committee
	TransCanada Corporation	Human Resources Committee Health, Safety and Environment Committee
	Hudson’s Bay Company	Human Resources Committee Executive and Corporate Governance Committee
	Nova Chemicals Corporation	Audit, Finance and Risk Committee Human Resources Committee
David W. Kerr	Falconbridge Limited	No Committees
	Brookfield Asset Management Inc.	No Committees
	Sun Life Financial Inc.	Audit and Conduct Review Committee Management Resources and Compensation Committee
Clive Mather	Placer Dome Inc. (resigned from Placer Dome Inc.’s board in January, 2006)	Human Resources and Compensation Committee Safety and Sustainability Committee Reserves and Technical Committee

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	Other Publicly Traded Company
Director	Directorships	Committee Memberships
Ronald W. Osborne	Sun Life Financial Inc.	Governance Committee
	Torstar Corporation	Audit Committee Salary and Organization Committee
	Four Seasons Hotels Inc.	Audit Committee
	St. Lawrence Cement Group Inc.	No Committees
	Nortel Networks Limited	Audit Committee Pension Committee
	Nortel Networks Corporation	Audit Committee Pension Committee
	RioCan Real Estate Investment Trust	Audit Committee
Raymond Royer	Domtar Inc.	Pension Committee Environment, Health and Safety Committee
	Power Financial Corporation	Executive Committee Audit Committee Compensation Committee
Nancy C. Southern	ATCO Ltd.	No Committees
	Canadian Utilities Limited	No Committees
	Bank of Montreal	Risk Review Committee
	CU Inc.	No Committees
	Akita Drilling Ltd.	No Committees

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Interlocking Relationships

The following table lists the directors of the Corporation who served together on the boards of directors of other publicly traded companies as at December 31, 2005:

Company	Director		Committees Served
Sun Life Financial Inc.		Ronald W. Osborne	• Governance Committee
		David W. Kerr	• Audit and Conduct Review Committee
			• Management Resources and Compensation Committee
TransCanada Pipelines Limited		Kerry L. Hawkins	• Health, Safety and Environment Committee
			• Human Resources Committee
		Derek H. Burney	• Governance Committee
TransCanada Corporation		Kerry L. Hawkins	• Health, Safety and Environment Committee
			• Human Resources Committee
		Derek H. Burney	• Governance Committee

Compensation of Directors

Effective January 1, 2005, annual retainers and attendance fees are paid to the members of the Board of Directors on the following basis:

Board of Directors	$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
Health, Safety, Environment & Social Responsibility Committee Member	$5,000
Health, Safety, Environment & Social Responsibility 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 RDS or any affiliate thereof do not receive any directors’ fees. Therefore, in 2005, Messrs. Routs, Mather and Loader did not receive any directors’ fees as they are employees of the Corporation or of RDS or an affiliate thereof.

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Directors’ Compensation Plans

All directors who are not employees of the Corporation or of RDS or 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 the 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 RDS 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 do not participate in any pension, retirement or other such plan of the Corporation and its subsidiaries.

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Summary of Directors’ Compensation for 2005

										Board		Board		Committee		Committee
			Committee		Lead			Committee		Attendance		Attendance		Attendance		Attendance
	Board		Chair		Director			Member		Fee		Fee		Fee		Fee		Total Fees
	Retainer		Retainer		Retainer			Retainer		(Personal)		(Conference)		(Personal)		(Conference)		Paid
Name	($)		($)		($)			($)		($)		($)		($)		($)		($)
D.H. Burney		50,000		7,000		8,111.11	(1)		10,000		14,000		4,000		15,000		2,250		110,361
I.J. Goodreau		50,000		–		–			12,000		14,000		4,000		15,000		750		95,750
K.L. Hawkins		50,000		10,000		–			10,000		12,000		3,000		15,000		1,500		101,500
D.W. Kerr		50,000		7,000		–			12,000		14,000		4,000		19,500		1,500		108,000
W.A. Loader		–		–		–			–		–		–		–		–		–
C. Mather		–		–		–			–		–		–		–		–		–
R.W. Osborne		50,000		7,000		–			12,000		14,000		5,000		21,000		750		109,750
R.J. Routs		–		–		–			–		–		–		–		–		–
R. Royer		50,000		–		–			12,000		14,000		3,000		12,000		750		91,750
N.C. Southern		50,000		–		–			10,000		12,000		4,000		10,500		–		86,500
										TOTAL FEES PAID TO DIRECTORS									$703,611

Note:

(1) Mr. Burney is compensated $10,000 per year to serve as Lead Director. Mr. Burney was appointed Lead Director on March 10, 2005. Therefore, his compensation was prorated for 2005.

As employees of the Corporation or of RDS or an affiliate thereof, Messrs. Routs, Mather and Loader do not receive any directors’ fees.

Director Share Ownership Requirements

Independent directors, who are not employees of the Corporation or of RDS or 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. As at December 31, 2005, the equity ownership of the directors in the Corporation is as follows:

Summary of Directors’ Equity Ownership and Changes in Equity Ownership⁽¹⁾

			Equity Ownership as at December 31,								Equity Ownership as at March 10,
			2005(2)								2005(3)								Net Change		Does the Director
																			in Amount at		Meet the
	# of																		Risk(4) as at		Minimum Share
	Years		Common						Amount		Common						Amount		December 31,		Ownership
Director	Served		Shares		DSUs		Total		at Risk		Shares		DSUs		Total		at Risk		2005		Requirement?
D.H. Burney		5		12,846		12,110.21		24,956.21	$	1,049,408.63		3,282		2,959.59		6,241.59	$	551,444.48	$	497,964.15		ü
I.J. Goodreau		3		2,817		5,047.55		7,864.55	$	330,704.33		939		756.45		1,695.45	$	149,793.01	$	180,911.32		ü
K.L. Hawkins		9		12,939		12,682.62		25,621.00	$	1,077,363.05		4,313		3,227.70		7,540.70	$	666,220.85	$	411,142.20		ü
D.W. Kerr		3		11,000		4,666.52		15,666.52	$	658,777.17		2,000		893.26		2,893.26	$	255,619.52	$	403,157.65		ü
W.A. Loader		3		–		–		–		–		–		–		–		–		–		X
C. Mather(5)		2		1,700		21,702.62		23,402.62	$	984,080.17		500		3,058.10		3,558.10	$	314,358.14	$	669,722.03		ü
R.W. Osborne		5		7,895		991.55		8,886.55	$	373,679.43		2,594		–		2,594.00	$	229,179.90	$	144,499.53		ü
R.J. Routs		1		1,509		–		1,509.00	$	63,453.45		503		–		503,00	$	44,440.05	$	19,013.40		X
R. Royer		6		28,556		–		28,556.00	$	1,200,779.80		8,690		–		8,690.00	$	767,761.50	$	433,018.30		ü
N.C. Southern		5		10,914		1,909.08		12,823.08	$	539,210.51		3,638		–		3,638.00	$	321,417.30	$	217,793.21		ü

Notes:

(1)	Shell Canada completed a 3 for 1 share split which took effect on the Toronto Stock Exchange (“TSX”) on June 21, 2005.
(2)	The closing price on the TSX on December 30, 2005 was $42.05.
(3)	The closing price on the TSX on March 10, 2005 was $88.35. March 10, 2005 was the record date for the 2005 Annual and Special Meeting of Shareholders of the Corporation.

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(4)	“Amount at Risk” refers to the amount of money that is invested in the Common Shares and DSUs of the Corporation that is exposed to the possibility of loss.
(5)	As an employee of the Corporation, Mr. Mather is not subject to director share ownership requirements but is subject to share ownership requirements as an executive officer of the Corporation. For further details on the share ownership requirements for executive officers, please refer to page 37 of this Management Proxy Circular.

All directors meet the share ownership requirements, with the exception of Messrs. Routs and Loader. Mr. Routs is an Executive Director of RDS and Mr. Loader is Director, Strategy and Business Development for RDS. As employees of RDS or an affiliate thereof, Messrs. Loader and Routs are not subject to the Corporation’s share ownership requirements.

Record of Director Attendance

The following table illustrates directors’ attendance for 2005. From time to time, Shell Canada calls special Board meetings that are not scheduled. These meetings may be called on short notice.

% of

Regularly

Regularly

% of

Scheduled

Scheduled

Special

Special

% of

Board

Board

Board

Board

Committee

Committee

Meetings

Meetings

Meetings

Meetings

Meetings

Meetings

Director

Committee Memberships

Attended

Attended

Attended

Attended

Attended

Attended

Derek H. Burney

N&G (Chair), MRCC, Reserves, HSE&SR(1) , Pension(2)

7 of 7

100%

4 of 5

80%

13 of 13

100%

Ida J. Goodreau

Audit, MRCC, HSE&SR, Pension

7 of 7

100%

4 of 5

80%

11 of 12

92%

Kerry L. Hawkins

Audit (Chair), N&G, Reserves, HSE&SR

6 of 7

86%

3 of 5

60%

12 of 15

80%

David W. Kerr

Reserves (Chair), Audit, N&G, HSE&SR

7 of 7

100%

4 of 5

80%

15 of 15

100%

W. Adrian Loader

–

6 of 7

86%

5 of 5

100%

–

–

Clive Mather

–

7 of 7

100%

5 of 5

100%

–

–

Ronald W. Osborne

MRCC (Chair), Pension (Chair), Audit, Reserves

7 of 7

100%

5 of 5

100%

15 of 16

94%

Rob J. Routs(3)

–

4 of 4

100%

2 of 2

100%

–

–

Raymond Royer

Audit, MRCC, Pension

7 of 7

100%

3 of 5

60%

9 of 12

75%

Nancy C. Southern

HSE&SR (Chair) MRCC, N&G, Pension

6 of 7

86%

4 of 5

80%

7 of 9

78%

Jeroen van der Veer(4)

–

2 of 3

67%

3 of 3

100%

–

–

Notes:

(1)	The Health, Safety, Environment & Social Responsibility Committee was established on November 17, 2005. No meetings of the Health, Safety, Environment & Social Responsibility Committee were held in 2005.
(2)	The Pension Subcommittee was established on March 10, 2006.
(3)	Mr. Routs was appointed as Chairman of the Meetings of the Board on April 29, 2005. Three regularly scheduled board meetings and three special board meetings were held in 2005 prior to Mr. Routs’ appointment to the Board.
(4)	Mr. Van der Veer retired from the Board of Directors on April 29, 2005. Three regularly scheduled board meetings and three special board meetings were held in 2005 prior to Mr. Van der Veer’s retirement from the Board.
(5)	The Board of Directors does not have an Executive Committee.

Summary of Meetings Held in 2005

Regularly Scheduled Board Meetings – 7

Special Board Meetings – 5

Audit Committee Meetings – 7

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Management Resources and Compensation Committee Meetings – 5

Nominating and Governance Committee Meetings – 4

Reserves Committee Meetings – 4

The practice of the Board of Directors and each Committee is to meet without management present in connection with each regularly scheduled meeting.

All directors receive in-depth board and committee materials pertaining to the business to be considered at each board and committee meeting. If a director is unable to attend any board or committee meeting, that director may contact the Chairman of the Meetings of the Board, the Lead Director, the President and Chief Executive Officer or any other director to discuss the business addressed by the board or the committee. Directors may also communicate with members of the senior management team, as well as any other employee of the Corporation, who may have relevant information pertaining to board or committee business.

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 2005, the approximate amount of the insurance premium paid by the Corporation was $640,000 on an annual basis. A one year policy was purchased that will expire June 30, 2006. 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.

3) Appointment of Auditors

Unless otherwise specified, the persons designated in the form of proxy intend to vote 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 2005 and 2004, the following fees were approved for or paid to PricewaterhouseCoopers LLP:

	Year Ended			Year Ended
	December 31,			December 31,
	2005			2004
Audit Fees	$	1,697,000	(1)	$	804,000
Audit-related Fees	$	452,000	(2)	$	331,000	(3)
Tax Fees	$	190,000	(4)	$	265,000	(4)
All Other Fees		–			–
Total	$	2,339,000		$	1,400,000

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Notes:

(1)	Audit fee for Shell Canada and subsidiary companies and audit and assurance procedures, including procedures related to the Sarbanes-Oxley Act of 2002.
(2)	Legislative compliance advice, sustainability audit report and ISO 14001 re-registration audit.
(3)	Legislative compliance advice, assurance due diligence for a transaction between the Corporation and an affiliate and ISO 14001 re-registration audit.
(4)	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.

4) Articles of Amendment

The Articles of the Corporation currently provide that the Board of Directors shall consist of a minimum of eight and a maximum of fifteen directors, and that the directors in office at the time of continuance of the Corporation under the Canada Business Corporations Act shall hold office, subject to the provisions of the Canada Business Corporations Act, until the expiration of the term for which they were elected prior to continuance.

The Board of Directors believes that it is appropriate to amend the Articles of the Corporation to provide it with the ability to appoint directors in accordance with the provisions of the Canada Business Corporations Act. This will provide the flexibility necessary to recruit directors experienced in the businesses of the Corporation and to provide for continuity during any changes to the membership of the Board.

The text of the proposed special resolution to amend the Articles of the Corporation is as follows:

RESOLVED that:

1) The Corporation is hereby authorized to amend Item 5 of the Restated Articles of Incorporation of the Corporation by deleting Schedule B in its entirety and substituting therefor:

“The number of directors of the Corporation shall be a minimum of eight and a maximum of fifteen. The number of directors of the Corporation and the number of directors to be elected at the annual meeting of the shareholders of the Corporation shall be determined from time to time by resolution of the directors. The directors may appoint one or more directors, who shall hold office for a term expiring not later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third of the number of directors elected at the previous annual meeting of shareholders.”

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.

At the Meeting, the shareholders will be asked to approve the amendment by special resolution. 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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PART III: Report of Committees

Report of the Audit Committee

Membership

The Board of Directors appointed the Audit Committee at the meeting of the Board of Directors on April 29, 2005 and chose Kerry L. Hawkins to be Chair of the committee.

The Audit Committee has five members and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

Financial Literacy and Expertise

The members of the Audit Committee have relevant education and experience as follows:

Kerry L. Hawkins:	Mr. Hawkins holds a degree in Business Economics from North Dakota State University.
Ida 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.
David W. Kerr:	Mr. Kerr is a chartered accountant.
Ronald 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.
Raymond 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. David W. Kerr, Ronald W. Osborne and Raymond Royer each have accounting or related financial management expertise and are independent (as defined in the United States by the New York Stock Exchange) and qualified to be an audit committee financial expert (as defined in the United States by the Securities and Exchange Commission (“SEC”)).

Charter

A copy of the Audit Committee’s mandate is attached to this Management Proxy Circular in Appendix 1. A copy of the Audit Committee Charter is posted on the Corporation’s website at www.shell.ca. A copy of the Audit Committee Charter can also be received upon request to the Corporation’s Secretary.

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Meetings – 2005

The Audit Committee held seven meetings in 2005 and, among other matters, considered the following:

• 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.

• Reviewed the annual and interim financial statements, including Management’s Discussion and Analysis, and press releases containing material financial information prior to approval by the Board 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, 2005 and the nine months ended September 30, 2005 pursuant to a delegation from the Board of Directors.

• Reviewed and recommended to the Board for approval the external auditors fees for 2004 and recommended to the Board the reappointment of PricewaterhouseCoopers LLP as the Corporation’s external auditors for 2005.

• Received seven 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 six times with the Audit Committee separate from management.

• Received five reports from and met with the Corporation’s 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 six times with the General Auditor separate from management and the external auditors.

• Received seven reports from and met with the Director, Corporate Governance in relation to the Sarbanes-Oxley Section 404 compliance program with focus on the development of an internal framework for evaluating and reporting on the effectiveness of the Company’s internal control over financial reporting.

• Received a report from management on the Corporation’s disclosure controls and procedures and reviewed with management the financial reporting process and internal controls.

• Reviewed the current and emerging U.S. and Canadian disclosure requirements and the Audit Committee’s procedures and responsibilities.

• Reviewed the Audit Committee Charter and recommended certain changes for approval to the Board.

• Reviewed and pre-approved the audit and permitted non-audit services to be provided by the external auditors.

• 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.

• Reviewed and approved the external auditors’ engagement letter , audit plan and estimated fees for 2005.

• Received and approved the 2004 expenses of the President.

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• Reviewed and recommended to the Board for approval, the 2004 Annual Information Form, the 2005 Management Proxy Circular, the 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.

• Received a report from management on the Corporation’s risk assessment review for 2005.

Meetings – First Quarter of 2006

The Audit Committee held three meetings in the first quarter of 2006 and, among other matters, considered the following:

Financial Disclosure

The Audit Committee reviewed and discussed with management and the external auditors the 2005 Annual Information Form, this Management Proxy Circular, Management’s Discussion and Analysis contained in the 2005 Annual Report and the audited consolidated financial statements for the year ended December 31, 2005. 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 2005 Annual Information Form, this Management Proxy Circular, Management’s Discussion and Analysis contained in the 2005 Annual Report and the audited consolidated financial statements for the year ended December 31, 2005, 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 2006.

Report presented by:

Kerry L. Hawkins, Chair

Ida J. Goodreau

David W. Kerr

Ronald W. Osborne

Raymond Royer

Report of the Reserves Committee

Membership

The Board of Directors appointed the Reserves Committee at the meeting of the Board of Directors on April 29, 2005 and chose David W. Kerr to be Chair of the committee.

The Reserves Committee has four members and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

Charter

A copy of the Reserves Committee’s mandate is attached to this Management Proxy Circular in Appendix 1. A copy of the Reserves Committee Charter is posted on the Corporation’s website at

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www.shell.ca. A copy of the Reserves Committee Charter can also be received upon request to the Corporation’s Secretary.

Meetings  – 2005

The Reserves Committee held four meetings in 2005 and, among other matters, considered the following:

• 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 of Directors for the year ended December 31, 2004.

• 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.

• Reviewed the report on the internal audit review of the Corporation’s oil and gas and oil sands mining reserve evaluation processes and 2004 reserve estimates.

• Recommended the approval of the content and filing of the Corporation’s statement of reserves data, the filing of the reports of the internal qualified reserves evaluators and the content and filing of the related report of management and the Board of Directors for the year ended December 31, 2004.

• Reviewed the oil and gas reserves position outlook for 2005.

• Reviewed the oil sands mining reserves position outlook for 2005.

• Reviewed the Reserves Committee Charter and recommended certain changes for approval to the Board.

Meetings  – First Quarter of 2006

The Reserves Committee held two meetings in the first quarter of 2006 and, among other matters, considered the following:

Reserves Data

The Reserves Committee:

• 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, together with their respective reports thereon.

• 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.

Based on this review and discussion, and the reports of the internal qualified reserves evaluators, the Reserves Committee recommended to the Board of Directors the approval of the content and filing of the Corporation’s statement of reserves data, the filing of the reports of the internal qualified reserve evaluators,

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and the content and filing of the related report of management and the Board of Directors for the year ended December 31, 2005.

Report presented by:

David W. Kerr, Chair

Derek H. Burney

Kerry L. Hawkins

Ronald W. Osborne

Report of the Nominating and Governance Committee

Membership

The Board of Directors appointed the Nominating and Governance Committee at the meeting of the Board of Directors on April 29, 2005 and chose Derek H. Burney to be Chair of the committee.

The Nominating and Governance Committee has four members and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

Charter

A copy of the Nominating and Governance Committee’s mandate is attached to this Management Proxy Circular in Appendix 1. A copy of the Nominating and Governance Committee Charter is posted on the Corporation’s website at www.shell.ca. A copy of the Nominating and Governance Committee Charter can also be received upon request to the Corporation’s Secretary.

Meetings  – 2005

The Nominating and Governance Committee held four meetings in 2005 and, among other matters, considered the following:

• Reviewed and recommended to the Board of Directors the nominees for appointment to the Board of Directors of the Corporation.

• Reviewed the proposed assessment framework to be used in connection with the annual Board and Committee evaluation, and reviewed the results of the annual assessment of Directors.

• Reviewed the current membership of the Audit, Reserves, Management Resources and Compensation and Nominating and Governance Committees.

• Reviewed and recommended to the Board of Directors the proposed membership of the committees for the following twelve month period.

• Reviewed and recommended to the Board of Directors that changes be made to the Charters of the Audit Committee, the Reserves Committee, the Management Resources and Compensation Committee, the Nominating and Governance Committee and the Board of Directors.

• Reviewed and recommended to the Board of Directors that changes be made to the position descriptions for the Chairman of the Meetings of the Board, the Committee Chairs and the Directors.

• Reviewed and recommended to the Board of Directors that a position description be established for the Chief Executive Officer and the Lead Director.

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• Reviewed and recommended to the Board of Directors that a Health, Safety, Environment & Social Responsibility Committee and a Pension Subcommittee be established.

• Reviewed directors’ compensation practices at peer companies as well as selected TSX listed entities and subsequently recommended to the Board of Directors that the directors’ compensation be increased.

• Reviewed the orientation and continuing education program for directors and approved a proposal to fund the membership of each director in the Institute of Corporate Directors.

• Reviewed and recommended to the Board of Directors the approval of Independence Standards for the Board of Directors.

• Reviewed revisions proposed to the Corporation’s Disclosure Policy and recommended the revised Disclosure Policy to the Board of Directors for approval.

• Reviewed and discussed the new disclosure requirements as a result of proposed National Instrument 58-101 Disclosure of Corporate Governance Practices and National Policy 58-201 Corporate Governance Guidelines.

• Reviewed and approved the Statement of Corporate Governance Practices to appear in the 2005 Management Proxy Circular.

Meetings – First Quarter of 2006

The Nominating and Governance Committee held two meetings in the first quarter of 2006 and, among other matters, considered the following:

Statement of Corporate Governance Practices

The Nominating and Governance Committee reviewed and recommended to the Board of Directors the approval of the Statement of Corporate Governance Practices which can be found in Appendix 2 of this Management Proxy Circular.

Report presented by:

Derek H. Burney, Chair

Kerry L. Hawkins

David W. Kerr

Nancy C. Southern

Report of the Health, Safety, Environment & Social Responsibility Committee

Membership

The Board of Directors appointed the Health, Safety, Environment & Social Responsibility Committee at the meeting of the Board of Directors on November 17, 2005 and chose Nancy C. Southern to be Chair of the committee.

The Health, Safety, Environment & Social Responsibility Committee has five members and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

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Charter

A copy of the Health, Safety, Environment & Social Responsibility Committee’s mandate is attached to this Management Proxy Circular as Appendix 1. A copy of the Health, Safety, Environment & Social Responsibility Committee Charter is posted on the Corporation’s website at www.shell.ca. A copy of the Health, Safety, Environment & Social Responsibility Committee Charter can also be received upon request to the Corporation’s Secretary.

Meetings – 2005

The Health, Safety, Environment & Social Responsibility Committee did not hold any meetings in 2005.

Meetings – First Quarter of 2006

The Health, Safety, Environment & Social Responsibility Committee held two meetings in the first quarter of 2006 and, among other matters, considered the following:

Sustainable Development Report

The Health, Safety, Environment & Social Responsibility Committee reviewed the 2005 Sustainable Development Report. A copy of this report will be posted on the Corporation’s website at www.shell.ca.

Committee Members:

Nancy C. Southern (Chair)

Derek H. Burney

Ida J. Goodreau

Kerry L. Hawkins

David W. Kerr

Report of the Management Resources and Compensation Committee

Membership

The Board of Directors appointed the Management Resources and Compensation Committee at the meeting of the Board of Directors on April 29, 2005 and chose Ronald W. Osborne to be Chair of the committee.

The Management Resources and Compensation Committee has five members and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

Charter

A copy of the Management Resources and Compensation Committee’s mandate is attached to this Management Proxy Circular as Appendix 1. A copy of the Management Resources and Compensation Committee Charter is posted on the Corporation’s website at www.shell.ca. A copy of the Management Resources and Compensation Committee Charter can also be received upon request to the Corporation’s Secretary.

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Meetings – 2005

The Management Resources and Compensation Committee held five meetings in 2005 and, among other matters, considered the following:

• Reviewed the President and Chief Executive Officer’s 2004 performance and reviewed and approved the proposed targets and objectives for 2005.

• Reviewed and approved the 2005 base salary for the President and Chief Executive Officer and his bonus for 2004.

• Reviewed and approved the 2005 base salaries and the bonuses for 2004 for the senior vice presidents, the Chief Financial Officer and the vice presidents of the Corporation.

• Reviewed succession plans for the President and Chief Executive Officer and senior management.

• Reviewed and approved the 2004 Report on Executive Compensation for inclusion in the 2005 Management Proxy Circular.

• Engaged an independent consulting firm, Towers Perrin, to provide advice on executive compensation design and other compensation matters.

• Received presentations by Towers Perrin with respect to the Corporation’s compensation and benefits programs.

• Reviewed and approved revisions to the Corporation’s Long Term Incentive Agreements.

• Reviewed and recommended to the Board various officer appointments.

• Reviewed and approved share ownership guidelines for executive officers of the Corporation.

• Reviewed the Management Resources and Compensation Committee Charter and recommended certain changes for approval to the Board.

Meetings – First Quarter of 2006

The Management Resources and Compensation Committee held two meetings in the first quarter of 2006 and, among other matters, considered the following:

Report on Executive Compensation

The Management Resources and Compensation Committee reviewed and recommended to the Board of Directors the approval of the Report on Executive Compensation which can be found on pages 32 to 41 of this Management Proxy Circular.

Pension Subcommittee

The Board of Directors appointed the Pension Subcommittee at the meeting of the Board of Directors on March 10, 2006 and chose Ronald W. Osborne to be Chair of the subcommittee.

The Pension Subcommittee has the same membership as the Management Resources and Compensation Committee and each member is an independent director, as defined by the Corporation’s Independence Standards. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

Charter

A copy of the Pension Subcommittee’s mandate is attached to this Management Proxy Circular as Appendix 1. A copy of the Pension Subcommittee’s Charter is posted on the Corporation’s website at www.shell.ca. A copy of the Pension Subcommittee’s Charter can also be received upon request to the Corporation’s Secretary.

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Meetings – 2005 and First Quarter of 2006

The Pension Subcommittee was appointed on March 10, 2006, and accordingly did not hold any meetings in 2005 or in the first quarter of 2006.

Report presented by:

Ronald W. Osborne, Chair

Derek H. Burney

Ida J. Goodreau

Raymond Royer

Nancy C. Southern

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PART IV: The Corporation’s Executive Compensation Program

Management Resources and Compensation Committee

Composition

The Board of Directors has established the Management Resources and Compensation Committee to assist the Board of Directors in fulfilling its responsibilities relating to the Corporation’s goals and objectives concerning: (a) compensation of the Corporation’s executive officers; (b) pension, benefit and long term incentive plans; and (c) senior management succession and development plans. The Board appoints the Management Resources and Compensation Committee annually at the Board meeting immediately following the annual meeting of shareholders. None of the members of the Committee 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 Committee met five times during 2005 to fulfill its responsibilities. The Chairman of the Committee reports to the Board at its next meeting following any meeting or the signing of any written resolution or recommendation of the Committee.

The Management Resources and Compensation Committee is comprised of five directors, all of whom are independent as defined in the Independence Standards of the Corporation.

Ronald W. Osborne (Chairman)

Derek H. Burney

Ida J. Goodreau

Raymond Royer

Nancy C. Southern

Mandate of the Management Resources and 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 Management Resources and Compensation Committee to:

• review and approve the annual targets and objectives of the President and Chief Executive Officer and evaluate his or her performance against such targets and objectives;

• review and approve the annual compensation of the President and Chief Executive Officer, in consultation with the Chairman of the Meetings of the Board;

• based on the recommendation of the President and Chief Executive Officer, review and approve the annual compensation for senior management, including the Named Executive Officers that are identified on page 42 of this Management Proxy Circular;

• 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 and administer the Corporation’s Long Term Incentive Plan;

• 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;

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• review and approve any employment contracts and any other individual financial arrangements for senior management;

• recommend to the Board for approval the Report on Executive Compensation included in the Annual Management Proxy Circular; and

• review and recommend to the Board for approval any changes to the “Shell Canada Limited Deferred Share Unit Plan for Executive Officers”.

Executive Compensation Consulting Arrangement

The Management Resources and Compensation Committee has engaged an independent consulting firm, Towers Perrin, to provide advice on executive compensation design and other compensation matters, including:

• preparing assessment of competitiveness of compensation and benefits for the President and Chief Executive Officer and executives compared to comparator companies and a broad industry sample;

• providing advice to the Management Resources and Compensation Committee on appropriate levels of base salary, short-term and long-term incentive compensation;

• providing support regarding the design and administration of short-term and long-term incentive programs for executives;

• reviewing the Report on Executive Compensation contained in the Management Proxy Circular and providing any recommendations for change in light of market practice; and

• providing additional support as requested by the Management Resources and Compensation Committee.

Costs associated with Towers Perrin consulting work for the Management Resources and Compensation Committee in 2005 were $115,000. Towers Perrin did not provide any other services to the Corporation in 2005.

Report on Executive Compensation

Compensation Philosophy

The Corporation’s executive compensation program reflects the Corporation’s philosophy that executive compensation should:

• attract, retain and motivate 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 contributes 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;

• have a significant component linked to the achievement of specific financial and non-financial measures and results as reflected in the Corporation’s Scorecard (defined below); and

• be responsible to shareholders and fair to senior management, employees and other stakeholders.

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Compensation Summary

Shell Canada’s executive compensation package, which is designed to meet performance and competitiveness objectives, is comprised of the following five components:

1)	base salary;
2)	annual incentive pay;
3)	long term incentives;
4)	pension; and
5)	perquisites.

These components are discussed in more detail on the following pages.

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 proportion of the compensation package that is variable and at risk. This recognizes the degree to which an employee is able to influence operational results. For the President and Chief Executive Officer, the Chief Financial Officer, the Named Executive Officers and other members of senior management, the compensation package is highly linked to performance.

In determining the total compensation of senior management of the Corporation, the Management Resources and Compensation Committee considers the following when setting and adjusting compensation levels:

• competitive compensation data;

• internal relativity and individual skills;

• experience; and

• individual, business unit and corporate performance.

Competitive compensation data is gathered from approximately twenty Canadian oil and gas companies used as the “Comparator Group” by the Corporation in reviewing or setting its compensation objectives. 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 to attract and retain talent.

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 member companies of the Shell Group allows the Corporation to improve the competitiveness of its business and develop senior as well as 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 Shell Group. 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 member companies of the Shell Group.

1) Base Salaries

The Management Resources and Compensation Committee reviews and approves adjustments to the base salary of the President and Chief Executive Officer on an annual basis. The Management Resources and Compensation Committee reviews and has the authority to approve salary recommendations made by the President and Chief Executive Officer for the other members of senior management of the Corporation including the Named Executive Officers.

Base salaries are determined for each member of senior management by considering his or her position, duties and responsibilities, the degree of special skill and knowledge required to perform their role, and a

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comparison to others inside as well as outside the organization in similar positions of responsibility and scope. Base salaries are targeted to ensure strong positioning against the Comparator Group and are reviewed annually and adjusted, as appropriate, based on these factors and the individual’s performance.

2) Annual Incentive Pay

The Corporation believes incentive pay motivates and 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”). The management teams for each of the operating business units (Exploration & Production (“E&P”), Oil Products, and Oil Sands) set their business plans annually, and the business plans are reviewed and approved by Shell Canada’s senior management team and the Board. The approved business plans are used as the basis for establishing Scorecard targets which are reviewed by the Management Resources and Compensation Committee. The Corporation’s company-wide and segregated business unit performance determines the Scorecard payout to which employees in each business unit (including Corporate, which is a service provider to the three operating business units) are entitled.

In 2005, the Corporation’s common Scorecard measures accounted for 60 per cent of the overall business unit Scorecard. These measures were Return On Average Capital Employed (“ROACE”), cash flow, Total Shareholder Return (“TSR”) rank and safety as measured by Total Recordable Injury Frequency (“TRIF”). “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 operational performance measures and targets specific to their business unit.

Senior management is also compensated on the basis of Scorecard results. The Scorecard is used as the starting point in the annual incentive pay determination process for senior management and makes up the largest component of their annual incentive pay. Individual performance is also taken into consideration when determining these awards and can increase or decrease the amount of the annual incentive award. Annually, each member of senior management enters into a performance contract which documents the targets and objectives to be achieved by each individual in the current fiscal year and may include elements such as:

• Scorecard and business results;

• strategic milestones; and

• leadership and overall contribution to the Corporation’s reputation and success.

A substantial portion of each member of senior management’s annual compensation is at risk as it is linked to the achievement of Scorecard results and individual performance targets and objectives. Annual target incentive payments are based on each senior manager’s level of responsibility within the Corporation, and are established as a percentage of base salary. If certain performance levels are achieved, incentive awards are payable. If Scorecard results and individual performance targets are met for the performance year, the annual incentive award is intended to strongly position total cash compensation (base salary plus annual incentive award) relative to the Comparator Group. These incentive awards are intended to provide amounts that are competitive with the incentive awards that would be paid to other senior managers within the Comparator Group in similar positions and circumstances.

The Management Resources and Compensation Committee has authority to determine whether or not incentive 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 per cent to 65 per cent of base salary and could range from zero (if the threshold is not met) to between 120 per cent to 130 per cent of annual base salary (when outstanding Scorecard and individual results are achieved).

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In 2005, all business unit Scorecards were above target as shown in the following 2005 Scorecard Results table:

Business Unit (BU)	Overall BU Score (Target is 1.0)
Exploration and Production		1.14
Oil Products		1.15
Oil Sands		1.51
Corporate		1.27

3) Long Term Incentive Plan

Shell Canada has a Long Term Incentive Plan (“LTIP”) pursuant to which the Management Resources and Compensation Committee awards options to purchase Common Shares with attached tandem share appreciation rights (collectively, “Options”) to selected officers and employees. A share appreciation right (“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 LTIP is intended to align the interests of employees with shareholders and to act as an attraction and retention incentive. The Corporation believes that the LTIP encourages achievement of long-term goals of the Corporation and therefore complements and acts as a balance to the annual incentive pay program.

Options are an integral part of the total compensation package for senior management. The LTIP 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 performance-based and fifty per cent are regular time-vested. Options are granted on the basis that the combined expected value of both performance-based and regular Options will result in this component of compensation being positioned strongly relative to that of the Comparator Group. Shell Canada’s position relative to the Comparator Group is reviewed annually. The expected value of each long-term incentive award is determined using a binomial modeling valuation methodology. This model identifies assumptions related to the discounted value of the award’s future payout.

Regular time-vested Options vest one-third each year for three years following the grant date. Performance-based Options have a vesting determination at three years following the grant date if certain performance criteria are met. For the 2005 performance-based Options to automatically vest, the comparative three-year TSR must exceed the average of Imperial Oil, Petro-Canada, Husky and Suncor’s TSR at the end of the three-year period. If the Corporation’s TSR does not exceed the average, the Management Resources and Compensation Committee may determine, in its sole discretion, whether all or a portion of the performance-based Options granted shall vest. In January 2006, the 2003 performance-based Options did not vest and therefore were cancelled as the Corporation’s overall TSR for the period did not exceed the average of the 2003 comparator group (Imperial Oil, Petro-Canada, and Suncor).

The Management Resources and Compensation Committee grants Options annually without reference to outstanding awards held by the employee. However, it does take into consideration the number of issued and outstanding Common Shares as well as Options at the time of grant. Generally, the higher the job level, the greater the number of Options that will be issued. In addition, the Management Resources and Compensation Committee has delegated authority to the President and Chief Executive Officer to authorize limited grants throughout the year to enhance attraction and retention of key individuals.

No individual employee can be granted in excess of an aggregate of 2,700,000 Options (0.33 per cent of the total number of issued and outstanding Common Shares as at December 31, 2005). No single option holder presently exceeds this limit. No Options are granted to non-employee directors, nor are Options granted in respect of any securities other than Common Shares. No dividend or proxy-voting rights are granted prior to an exercise of Options and the acquisition of Common Shares. In 2005, approximately 12 per cent of employees within the Corporation received Options.

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The term of an Option is ten years from the date of grant and the strike price is the closing market price of Common Shares on the date of grant (“Strike Price”). The cash payment on a SAR 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 Options enables the Corporation to provide similar benefits to Option holders without increasing dilution caused by issuing Common Shares.

If a recipient of Options voluntarily ceases employment, the Options terminate over periods from thirty days to full term based on the recipient’s age and eligibility in the Corporation’s pension plan. In the case of involuntary termination without cause, Options remain outstanding for 2 to 5 years based on the recipient’s eligibility in 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 regulatory, stock exchange and other approvals. The Management Resources and Compensation Committee may also amend individual long-term incentive agreements with the consent of the Option holder. LTIP awards are not transferable by the recipient otherwise than by will or the laws of succession.

4) Pension

An integral part of the compensation package offered to all employees of the Corporation, including senior management, is the Corporation’s pension plan. For a description of this plan, please refer to “Retirement and Savings Program” at page 46 of this Management Proxy Circular.

5) Perquisites

Perquisites are considered a minor component of senior management compensation and are periodically reviewed and adjusted, subject to the approval of the Management Resources and Compensation Committee. An allowance is provided to cover items such as vehicle expense, financial counseling and fitness memberships (among others).

Share Ownership Guidelines

Effective December 1, 2004, Shell Canada adopted share ownership guidelines for its senior executive officers. The required shareholdings are determined as a multiple of the executive’s salary divided by the closing share price on the TSX on the day prior to the effective date, which is December 1, 2004 or the date of appointment. Multiples established for each participant are:

President and Chief Executive Officer two times base salary

Chief Financial Officer one times base salary

Canadian Senior Vice Presidents one times base salary

Expatriate Senior Vice Presidents 50 per cent of base salary

In calculating share ownership, the value of both Common Shares and DSUs (discussed below) are considered. Options granted are excluded.

The required shareholdings must be attained by the later of December 1, 2009 (5 years after implementation), or five years after appointment to these positions. As of March 10, 2006, the President and Chief Executive Officer has met 37 per cent of his ownership requirements, the Chief Financial Officer has met over 100 per cent of her ownership requirements, the Senior Vice President, E&P has met 14 per cent of his ownership requirements and the Senior Vice President, Oil Sands has met 27 per cent of his requirements. The Senior Vice President, Oil Products is not required to meet these share ownership requirements as his expatriate terms were agreed prior to the implementation of the Share Ownership Guidelines. It is expected that the guidelines will be met by all participating senior executive officers within the five-year implementation period.

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Senior Management Equity Ownership

	Number of		Equity Ownership Position as at								Equity Ownership Position as at
	Years Since		December 31, 2004(1)								December 31, 2005(2)								Net Change
	Program																		in Amount at		Per cent
	Introduction																		Risk as at		Ownership
	in December,		Common						Amount		Common						Amount		December 31,		Position
Executive	2004		Shares		DSUs		Total		at Risk		Shares		DSUs		Total		at Risk		2005		Attained
Clive Mather, President and Chief Executive Officer		1.1		500		3,058		3,558	$	284,604		1,700		21,703		23,403	$	984,096	$	699,492		37%
Cathy L. Williams, Chief Financial Officer		1.1		6,000		—		6,000	$	479,940		36,300		—		36,300	$	1,526,415	$	1,046,475		>100%
H. Ian Kilgour, Sr. Vice President, E&P		1.1		589		—		589	$	47,114		2,087		—		2,087	$	87,758	$	40,644		14%
Brian E. Straub, Sr. Vice President, Oil Sands(3)		.25		NA		NA		NA		NA		—		2,634		2,634	$	110,760	$	110,760		27%
David M. Weston, Sr. Vice President, Products(4)		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA		NA

Notes:

(1)	Share price as of December 31, 2004 was $79.99 (pre-split).
(2)	Share price as of December 31, 2005 was $40.05 (post-split).
(3)	Mr. Straub did not commence participation in the Share Ownership Program until October 1, 2005.
(4)	Mr. Weston was an expatriate at the time the Share Ownership Program was introduced, and is excluded from the requirement to meet Share Ownership Guidelines.

Executive Deferred Share Unit Plan

The purpose of the Deferred Share Unit Plan for Executive Officers (the “Executive DSU Plan”) is to assist the President and Chief Executive Officer, the Chief Financial Officer and the Senior Vice Presidents in attaining their required shareholdings under the Share Ownership Guidelines. Under the plan, participants may elect to receive all or a percentage of their annual incentive payment in the form of DSUs.

A participant is required to make an irrevocable election to take part in the Executive DSU Plan prior to December 31 of the relevant fiscal year. When annual incentive payments are determined following the end of the fiscal year, the amount elected is converted to DSUs based on the closing price of the Common Shares on the TSX 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. A participant is not permitted to convert DSUs until he or she has ceased to be an employee or director of the Corporation or an affiliate. The cash value of the DSU is equivalent to the market value of the Common Shares when conversion takes place. In 2005, Messrs. Mather and Straub elected to participate in the Executive DSU Plan.

Employee Share Purchase Plan

The Corporation offers all employees the opportunity to participate in its Employee Share Purchase Plan (“ESPP”). Management believes that employees should have a stake in the Corporation’s future and that their interest should be aligned with the interest of shareholders. To this end, employees are permitted to make cash contributions for the purchase of Common Shares. The Corporation contributes an additional

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25 per cent (to a maximum of $150 per month) to the account of each participating employee for the purchase of additional shares and such shares must be held for the balance of the year.

Compensation of the President and Chief Executive Officer

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 executives of the Corporation but elected not to participate in the ESPP. Mr. Mather does not participate in the Corporation’s Retirement and Savings Program but is a member of the Shell Overseas Contributory Pension Fund.

The following table depicts total compensation for Mr. Mather in 2005.

2005 Compensation Element	Value
	($Cdn)
Base Salary	$	895,000
Annual Incentive Pay	$	755,000
Other Annual Compensation	$	193,551	(1)
Grant of 480,000 stock options in 2005	$	2,152,608	(2)
Value of pension contributions in 2005	$	423,487
Total	$	4,419,646

Notes:

(1)	Details found in “Summary Compensation Table”.
(2)	Represents the expected value of regular and performance-based options at time of grant based on the binomial modeling valuation methodology.

1) Base Salary

The President and Chief Executive Officer’s salary is reviewed by the Management Resources and Compensation Committee annually. Adjustments are based on his level of responsibility and comparison to the Comparator Group and his peers within the Shell Group.

2)  Annual Incentive Pay

At the beginning of 2005, a performance contract with identified targets and objectives was established between Mr. Mather and the Management Resources and Compensation Committee which included:

• the financial success of the Corporation as determined by ROACE and cash flow compared to targets established at the beginning of the performance cycle;

• the performance of the Corporation compared to other integrated oil companies as measured by TSR Rank;

• the strategic positioning of the Corporation for profitable growth and future success as measured by progress on specific strategic initiatives;

• the quality of the Corporation’s reputation and external relationships with stakeholders and customers;

• 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.

Mr. Mather’s annual incentive target is 65 per cent of annual base salary and is modified up or down based on the degree to which the Corporation’s Scorecard and his personal targets and measures are met. Mr. Mather’s annual incentive may not exceed 130 per cent of his annual salary.

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Mr. Mather received annual incentive payments that recognized his role in effectively leading the Corporation in a year where overall Scorecard results were above target. Specifically,

• The financial results of the Corporation exceeded expectations in 2005:

• return on average capital employed was 27 per cent, which exceeded Scorecard targets. Capital, exploration and predevelopment expenditures reached $1,715 million as a result of higher investment in all three of the Corporation’s businesses, including more than $350 million in new land purchases at Crown land sales to acquire more than 250,000 net acres in key strategic areas of Western Canada;

• the Corporation announced record earnings of $2,014 million or $2.44 per Common Share, up more than 50 per cent from 2004; and

• cash flow from operations reached a record $3,056 million in 2005, up over 40 per cent from $2,129 in 2004.

• The objectives set for strategic positioning of the Corporation for profitable growth and success were above target:

• progress was made during the second half of 2005 regarding clarity of the Mackenzie Gas Project regulatory process;

• a new strategy for the development of the Peace River lease was approved;

• a positive trend in natural gas production was evident by year-end, with Tay River proving to be one of the best land-based wells in Canada;

• basin-centred gas production began in November;

• there were many milestones achieved in the Oil Sands business including sustained production above design rates;

• major land acquisitions were completed;

• a record number of new graduates and experienced hires came on board throughout 2005;

• progress in the area of succession planning and leadership development was on target;

• share price performance was strong and a share split was completed in June 2005; and

• Shell Canada’s dividend was increased twice in 2005.

• Notwithstanding the above achievements, there were also some areas which provide opportunities for improvement in the future:

• the Corporation’s safety and environmental performance was below target; and

• the annual relative performance of the Corporation’s share price (TSR Rank) compared to the integrated oil and gas comparator group, while greater than 53 per cent, did not meet Scorecard threshold levels.

For 2005, Mr. Mather’s annual incentive payment was approximately 83 per cent of his current base salary, or approximately 127 per cent of his target.

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3)  Long Term Incentive Plan

Mr. Mather is eligible to participate in the LTIP. As with other senior executives, Option grants (time and performance-based), are considered on an annual basis, and take into account his comparative market position when determining how many new Options will be granted.

Report presented by:

Ronald W. Osborne, Chairman

Derek H. Burney

Ida J. Goodreau

Raymond Royer

Nancy 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 Chief Executive Officer and Chief Financial Officer 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, 2005 (collectively called the “Named Executive Officers”). All amounts are in Canadian dollars unless otherwise noted.

												Long-Term
			Annual Compensation									Incentives(1)
												Awards
												Securities
						Annual			Other			Under
						Incentive			Annual			Options/SARs		All Other
Name and			Salary			Pay			Compensation			Granted		Compensation
Principal Position	Year		($)			($)			($)(2)			(#)(3)		($)
Clive Mather		2005		895,000			755,000	(5)		193,551	(7)		480,000		423,487	(8)
President and CEO		2004		347,917	(4)		320,000	(5)(6)		104,280	(7)		Nil		427,902	(8)(9)
Linda Z. Cook		2004		581,409	(10)		470,000	(11)		388,231	(13)		360,000		161,484	(14)(15)
President and CEO		2003		421,250	(10)		350,000	(12)		230,374	(13)		Nil		147,520	(14)
Tim W. Faithfull		2003		716,449	(16)		475,000			57,672	(17)		540,000		130,656	(18)(19)
President and CEO
Cathy L. Williams		2005		408,750			310,000			–			222,000		Nil
Chief Financial		2004		345,000			305,000			–			240,000		Nil
Officer		2003		266,353	(20)		195,000	(21)		–			Nil		74,350	(22)
S. Stotvig		2003		94,530	(23)		65,000			15,315	(24)		210,000		9,216	(25)
Chief Financial
Officer
David M. Weston		2005		510,501			260,000			72,940	(27)		66,000		255,484	(28)
Senior Vice		2004		515,661			410,816			71,290	(27)		66,000		307,951	(28)
President,		2003		404,749			264,086	(26)		59,250	(27)		Nil		306,784	(28)
Products
H. Ian Kilgour		2005		437,500			340,000			–			222,000		Nil
Senior Vice		2004		383,750			400,000			–			240,000		Nil
President, E&P		2003		323,750			290,000			–			240,000		Nil
Neil J. Camarta		2005		322,500	(29)		290,000	(30)		–			222,000		1,270,220	(31)
Senior Vice		2004		403,750			275,000			–			240,000		Nil
President, Oil Sands		2003		378,750			215,000			–			240,000		Nil
Brian E. Straub		2005		133,333	(32)		120,000	(33)		–			Nil		113,365	(34)
Senior Vice
President,
Oil Sands

Notes:

(1)	The Corporation has not issued any Restricted Common 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)	Reflects a three-for-one share split that occurred June 21, 2005.
(4)	Mr. Mather is seconded from Shell International Limited and joined the Corporation on August 1, 2004.

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(5)	Mr. Mather elected to convert 75 per cent of his 2005 annual incentive pay ($566,250) and 2004 annual incentive pay ($240,000) to DSUs, pursuant to the Executive DSU Plan.
(6)	In April 2005, Mr. Mather received an annual incentive payment from Shell International Limited for the first seven months of 2004, in the amount of £105,500. This is not included in the Summary Compensation Table.
(7)	In 2005, housing and taxable benefits were $98,358, and in 2004 they were $28,688 as per Shell Group expatriate programs. Includes dependent education assistance and taxable benefits in 2005 of $59,568 and for 2004 of $60,851. Other expenses and benefits include vehicle, parking and tax equalization protection.
(8)	Mr. Mather is seconded from Shell International Limited and participates in The Shell Overseas Contributory Pension Fund (“SOCPF”). The Corporation’s annual cost of contribution to SOCPF’s pension plan for Mr. Mather in 2005 was $423,487 and in 2004 was $377,902, which included a one-time special pension fund contribution in the amount of $280,228. See “Retirement and Savings Program”.
(9)	Mr. Mather received a $50,000 relocation allowance as per the expatriate compensation programs of the Shell Group.
(10)	Ms. Cook joined the Corporation from Shell Expatriate Employment US Inc. (“SEEUS”) on July 1, 2003 and left her position as President and Chief Executive Officer of Shell Canada effective July 31, 2004 to join Royal Dutch Shell plc. Her 2004 salary included an amount of $52,536 for vacation pay that was outstanding as of the date of her departure.
(11)	Ms. Cook’s 2004 annual incentive pay was based on the Corporation’s business performance and Ms. Cook’s salary for the period from January 1 to July 31, 2004.
(12)	Ms. Cook’s 2003 annual incentive pay was based on the Corporation’s business performance and Ms. Cook’s salary for the period from July 1, 2003 to December 31, 2003. 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.
(13)	The 2004 amount has been restated to include additional tax adjustments made subsequent to publication of the 2005 Management Proxy Circular. Includes tax reimbursement and payments on income as per the Expatriate Compensation Program of the Shell Group in the amount of $308,364 restated from $258,218 for 2004 and $75,834 for 2003. Other expenses and benefits included housing, vehicle, parking, dependent education and a commodities and services allowance. Education expenses in 2003 were $71,652 as per the Shell Group expatriate compensation program.
(14)	SEEUS is a participating company in retirement programs for Shell Group employees. The Corporation’s cost of contribution to two 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 and are not represented in the Summary Compensation Table.
(15)	A payment of $38,100 was made to Ms. Cook in recognition of the requirement to surrender Options upon her move to Royal Dutch Shell plc. 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 Options (50 per cent of the number of Options that would have vested after one year).
(16)	Mr. Faithfull resigned from his position as President and Chief Executive Officer of the Corporation effective July 31, 2003. His salary included an amount of $160,050 for vacation pay that was outstanding as of the date of his resignation.
(17)	Included housing and taxable benefits as per the Shell Group expatriate compensation program for 2003 of $49,344.
(18)	Mr. Faithfull was seconded from Shell International Limited and participated in the SOCPF. The amount of $130,656 represented the cost of contribution to SOCPF pension plan for Mr. Faithfull.
(19)	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.
(20)	Ms. Williams re-joined Shell Canada from an affiliate company on March 10, 2003 and was appointed Chief Financial Officer effective April 1, 2003.
(21)	Ms. Williams’ 2003 annual incentive pay was for performance from March 10, 2003 to December 31, 2003.
(22)	Ms. Williams received a relocation allowance of $74,350.
(23)	Mr. Stotvig retired from the Corporation effective March 31, 2003. His salary included an amount of $8,280 for vacation pay that was outstanding as of the date of his retirement.
(24)	Includes housing and taxable benefit as per the Shell Group expatriate compensation policy of $14,754 for 2003.
(25)	Mr. Stotvig 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. Stotvig.
(26)	Mr. Weston is seconded from Shell International Limited and participates in Shell International Limited’s Variable Pay Program. In April 2004, Mr. Weston received an annual incentive payment of $264,086 for the 2003 performance year.
(27)	Includes housing and taxable benefit as per the expatriate compensation program for 2005 of $68,850, for 2004 of $68,850 and 2003 of $57,377.
(28)	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 2005 was $255,484, and in 2004 was $307,951, which included a one-time special pension fund contribution in the amount of $167,300, and in 2003 was $280,555 which included a one-time special pension fund contribution in the amount of $186,896. See “Retirement and Savings Program”.
(29)	Mr. Camarta retired effective September 30, 2005.
(30)	Mr. Camarta’s 2005 annual incentive pay is based on the Corporation’s business performance and his salary from the period January 1, 2005 to September 30, 2005.
(31)	Mr. Camarta received a special one-time retirement payment in the amount of $1,050,000 and a lump sum payment for outstanding vacation pay in the amount of $220,000.
(32)	Mr. Straub re-joined Shell Canada from an affiliate company and was appointed Senior Vice President, Oil Sands effective October 1, 2005.
(33)	Mr. Straub elected to convert 100 per cent of his 2005 annual incentive pay ($120,000) to DSU’s pursuant to the Executive DSU Plan.
(34)	Includes a relocation allowance of $99,350.

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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 36 and 37 of this Management Proxy Circular.

The following tables present details of grants to the Named Executive Officers during 2005.

Option/ SAR Grants During the Most Recently Completed Year

								Market Value
				Percentage of				of Securities
				Total Options/				Underlying
	Securities Under			SARs Granted				Options/ SARs
	Options/ SARs			to Employees		Exercise or		on the Date of
	Granted			in Financial		Base Price		Grant
Name	(#)			Year		($/Security)		($/Security)		Expiration Date
Clive Mather		240,000	(1)		4.05%		26.38		26.38		January 25, 2015
		240,000	(2)		4.05%		26.38		26.38		January 25, 2015
Cathy L. Williams		111,000	(1)		1.87%		26.38		26.38		January 25, 2015
		111,000	(2)		1.87%		26.38		26.38		January 25, 2015
David M. Weston		33,000	(1)(3)		0.56%		26.38		26.38		January 25, 2015
		33,000	(2)(3)		0.56%		26.38		26.38		January 25, 2015
H. Ian Kilgour		111,000	(1)		1.87%		26.38		26.38		January 25, 2015
		111,000	(2)		1.87%		26.38		26.38		January 25, 2015
Neil J. Camarta		111,000	(1)		1.87%		26.38		26.38		January 25, 2015
		111,000	(2)		1.87%		26.38		26.38		January 25, 2015

Notes:

(1)	Time vested Options vest over three years from date of grant and include a cash payment feature (tandem share appreciation rights) described under the Compensation Summary section on pages 34 to 37 of this Management Proxy Circular. This data reflects a three-for-one share split that occurred on June 21, 2005.
(2)	Performance-based Options vest based at the end of a three-year period based on TSR performance and include a cash payment feature (tandem Share Appreciation Rights) described under the Compensation Summary section. This data reflects a three-for-one division or share split that occurred on June 21, 2005.
(3)	Reflects comparative expected value of award levels of peers employed by member companies of the Shell Group.

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The following table presents details of exercises of Options during 2005 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
	Securities			Aggregate			Unexercised Options				in-the-Money Options
	Acquired on			Value			at FY-End				at FY-End
	Exercise(1)(2)			Realized			(#)				($)
Name	(#)			($)			Exercisable		Unexercisable		Exercisable		Unexercisable
Clive Mather		Nil			Nil			0		480,000		0		7,520,000
Cathy L. Williams		36,300			1,126,007			166,000		422,000		4,918,242		7,718,008
David M. Weston		11,001			127,153			0		120,999		0		2,199,979
H. Ian Kilgour		Nil			Nil			330,300		582,000		9,498,863		11,992,667
Neil J. Camarta		442,650	(3)		12,121,328	(3)		360,000		582,000		9,501,333		11,992,667
Brian E. Straub		Nil			Nil			42,000		0		1,396,080		0

Notes:

(1)	Represents the number of shares acquired on exercise, or the number of options surrendered for cancellation, as a result of electing to receive the equivalent value as cash payment.
(2)	Reflects a three-for-one share split of issued and outstanding shares that occurred on June 21, 2005.
(3)	Mr. Camarta retired effective September 30, 2005.

The following table shows, as of December 31, 2005, compensation plans under which equity securities of the Corporation are authorized for issuance from treasury. This information reflects a three-for-one share split that took effect on June 21, 2005. This information relates to the LTIP which has been approved by shareholders at previous annual meetings of shareholders. There are no equity plans requiring the issuance of Common Shares of the Corporation not previously approved by shareholders. See the description of the LTIP under “Report on Executive Compensation – Long Term Incentive Plan” in this Management Proxy Circular.

Securities Authorized for Issuance Under Equity Compensation Plans

Plan Category	(A) Number of Securities	(B) Weighted - Average	(C) Number of Securities Remaining
	to be Issued Upon	Exercise Price of	Available for Future Issuance Under
	Exercise of	Outstanding Options	Equity Compensation Plans
	Outstanding Options		(excluding securities in column (A))
	(#)		(#)
Equity Compensation
Plans approved by	20,966,133	$18.70	26,754,885
Security holders
Equity Compensation
Plans not approved by	Nil	Nil	Nil
Security holders
Total	20,966,133	$18.70	26,754,885

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Notes:

(1)	Common Shares issuable pursuant to actual grants under the LTIP (column (a)) represents 2.5 per cent of the Corporation’s outstanding Common Shares as at December 31, 2005. Common Shares issuable under the LTIP (aggregate of columns (a) and (c)) represents 5.8 per cent of the Corporation’s outstanding Common Shares as at December 31, 2005.
(2)	A total of 18,278,982 Common Shares had been issued under the LTIP as at December 31, 2005. This represents 2.2 per cent of the Corporation’s outstanding Common Shares as at December 31, 2005.

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 member companies of the Shell Group 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 except 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. Straub and Kilgour and Ms. Williams participate in the defined benefit segment of the registered pension plan for service from January 1, 1994.

An individual 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 consecutive years of the last 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 1 per cent up to Average Final Yearly Maximum Pensionable Earnings (“AFYMPE”), as set for the Canada Pension Plan and 2 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 multiplied by 1 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. 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. To recognize this earlier than normal retirement age, the Corporation provides a Senior Staff Retirement Plan, which allows a senior executive who retires at age 60 to elect to receive either:

• a lump-sum payment equal to terminal salary plus a three year rolling average of pensionable annual incentive pay received immediately prior to retirement date multiplied by two; or

• a supplementary pension equivalent to the straight-life annuity that can be provided by terminal 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.

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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 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).

Messrs. Mather and Weston do not participate in the Corporation’s Retirement and Savings Program as they continue membership in other Shell Group pension plans. The Corporation’s cost of contributions to such pension plans for 2005 was in the amount of $423,487 for Mr. Mather and $255,484 for Mr. Weston (see notes 8 and 28 in the Summary Compensation Table).

For purposes of computing the total retirement benefit of the Named Executive Officers, the following table sets forth the service accrued prior to January 1, 1994 (“Pre 1994 Service”) and service accrued after December 31, 1993 (“Post 1993 Service”) by the Named Executive Officers as at December 31, 2005.

Years of Credited Service

	Cathy L. Williams		H. Ian Kilgour		Brian E. Straub
Age		55.7		54.6		51.4
Pre-1994 Service		9.2		17.2		16.8
Post-1993 Service (1.75% formula)		1.4		—		6.7
Post-1993 Service (2.00% formula)		10.6		12.0		5.3

The projected annual retirement benefits payable by the Retirement and Savings Program to the Named Executive Officers (assuming, (i) base salaries in future years equals those received during the current year

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and (ii) pensionable bonus payments equal 20 per cent of base salaries) are shown in the following table along with the annual pension benefit accrued to December 31, 2005:

Projected Annual Pension Amounts

	Cathy L. Williams		H. Ian Kilgour		Brian E. Straub
Assuming Retirement at Age 60	$	254,800	$	366,300	$	343,700
Assuming Retirement When First  Eligible for Unreduced Pension	$	210,700	$	261,800	$	292,100
Accrued to December 31, 2005	$	156,300	$	231,100	$	166,400

The following table illustrates the service cost and year-end benefit obligation in respect of pension benefits payable to the Named Executive Officers using assumptions and methods consistent with those used in Note 9 of the Corporation’s audited consolidated financial statements for the year ending December 31, 2005 based on earnings and service through December 31, 2005:

2005 Service Cost, Benefit Obligation and Employee Contributions

	Cathy L. Williams		H. Ian Kilgour		Brian E. Straub
Service Cost During 2005	$	140,500	$	149,200	$	134,000
Benefit Obligation at December 31, 2005	$	3,041,200	$	4,209,200	$	3,487,900
Employee Contributions During 2005	$	14,330	$	14,400	$	10,430

It is important to note that the amounts illustrated in the preceding two tables are based on contractual entitlements as well as assumptions that may change over time. The methods used to estimate these amounts will not be identical to the methods used by other issuers and as a result the amounts may not be directly comparable between companies. The key assumptions used to determine the service cost and benefit obligation are consistent with the assumptions used for the Corporation’s audited consolidated financial statements and outlined in Note 9 to the financial statements.

PART V: Other Information

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 RDS, 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 Shell Petroleum N.V.

During 2005, the Corporation purchased $5,507 million of crude oil, petroleum products, chemicals and services and sold $2,343 million of natural gas, petroleum products and chemicals from and to Shell International Trading Company and other affiliates of RDS. 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.

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Five Year Total Shareholder Return Comparison

The following graph assumes that $100 was invested on December 31, 2000 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.

Statement of Corporate Governance Practices

A complete description of the Corporation’s system of corporate governance is set out in the Statement of Corporate Governance Practices attached as Appendix 2 to this Management Proxy Circular. This Management Proxy Circular, including Appendix 2, is posted on the Corporation’s website at www.shell.ca and under the Corporation’s profile at www.sedar.com.

Shareholder Proposals to be Submitted to 2007 Annual Meeting of Shareholders

Shareholder proposals must be received in the office of the Secretary of the Corporation by December 10, 2006 to be considered for inclusion in the management proxy circular and form of proxy for the 2007 annual meeting of shareholders.

Availability of Documents

Copies of the following documents are available upon request and without charge from the Corporation’s Secretary:

• 2005 Annual Information Form

• 2005 Annual Report containing the comparative consolidated financial statements for 2005 together with the auditors’ report thereon and Management’s Discussion and Analysis

• Interim financial statements for periods subsequent to December 31, 2005

• 2006 Management Proxy Circular

Financial information is available in the Corporation’s comparative consolidated financial statements and Management’s Discussion and Analysis contained in the 2005 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.

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You can also request these documents by writing to the Secretary at 400  – 4th Avenue S.W., Calgary, Alberta, T2P 2H5, or by sending a fax request to the Corporation’s Secretary at (403) 691-3194. You may also e-mail the Corporate Secretary at corporatesecretary@shell.com.

Directors’ Approval

The contents and the sending of this Management Proxy Circular have been approved by the directors of the Corporation.

Dated: March 10, 2006

Shannon L. Cosmescu

Acting Corporate Secretary

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APPENDIX 1: BOARD AND COMMITTEE MANDATES

BOARD OF DIRECTORS MANDATE

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

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.

• 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.

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• 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.

• 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.

• 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.

• 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.

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• 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

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”.

PENSION SUBCOMMITTEE MANDATE

The Subcommittee shall act within the scope of its authority; deal with matters as may be referred to it from time to time by the Board for consideration; and delegate day-to-day duties and responsibilities to management. The Subcommittee is authorized by the Board to deal with the following:

• Approve the Statement of Investment Policies and Procedures and the Statement of Investment Principles and Beliefs.

• Review fund status and investment performance for the Plans and review the Corporation’s contributions to the Plans.

• Approve, annually, the Plans’ audited annual financial statements.

• Approve, at least every three years, the Plans’ actuarial valuation.

• Receive and accept reports from management on any significant matters impacting the Plans.

NOMINATING AND GOVERNANCE COMMITTEE MANDATE

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.

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• 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:

• the Board mandate;

• the mandates and responsibilities of the committees of the Board; and

• the position descriptions as they exist from time to time.

• 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

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.

• Consultation with the Corporation’s senior reserves evaluation personnel, considering, reviewing and reporting to the Board in respect of the following:

• appointment of, or any changes to, qualified reserves evaluator(s) or auditor(s); and

• 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:

• the adequacy of such procedures for fulfillment of applicable regulatory and disclosure requirements and restrictions;

• 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

• 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).

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• 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:

• review the scope of work of the qualified reserves evaluator(s) or auditor(s);

• review the reserves estimates of the qualified reserves evaluator(s) or auditor(s); and

• 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:

• the content and filing of the statement of reserves data and related information;

• the filing of the report of the qualified reserves evaluator(s) or auditor(s); and

• the content and filing of the related report of management and the Board.

HEALTH, SAFETY, ENVIRONMENT & SOCIAL RESPONSIBILITY COMMITTEE MANDATE

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:

• Monitor the Corporation’s health, safety, environmental and social performance policies, management systems and internal controls and, in the Committee’s discretion, recommend any changes to the Board of Directors.

• Receive regular reports from senior management on the Corporation’s health, safety, environmental and social performance, current trends, emerging issues and the Corporation’s compliance with applicable laws and regulation.

• Conduct a periodic review of the Corporation’s environmental insurance and the adequacy of coverage.

• Review the Corporation’s annual report entitled “Progress Towards Sustainable Development”.

• Review the findings and recommendations arising from any significant examination by regulatory agencies and external auditors concerning the Corporation’s health, safety and environment matters.

• Meet with senior management to discuss the development and ongoing implementation of:

• social performance plans to address the social, health and economic impacts and benefits of the activities of the Corporation for relevant stakeholders; and

• capital investment plans to address strategic initiatives pertaining to health, safety and environment such as the reduction of greenhouse gas and sulphur emissions.

• Review with senior management, outside consultants, legal advisors and other appropriate stakeholders environmental implications relevant to the Corporation’s operations.

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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 2005 Annual Report contains an overview of the Corporation’s corporate governance practices on pages 96 to 101.

On June 30, 2005, National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201 Corporate Governance Guidelines came into effect. These rules replaced the Toronto Stock Exchange guidelines for effective corporate governance. The table below sets out a comparison of Shell Canada’s corporate governance practices with NI 58-101.

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 the new Canadian Securities Administrators’ disclosure standards.

NI 58-101	Shell Canada’s Corporate Governance Practices
1) Board of Directors
a)  Disclose the identity of directors who are independent.	The Nominating and Governance Committee analyzes all relationships between the directors and nominee directors and Shell Canada, its subsidiaries and its majority shareholder on an ongoing basis to ensure that the Board of Directors is composed of a majority of individuals who qualify as “independent”. All relationships are considered which could, in the view of the Nominating and Governance Committee, be reasonably expected to interfere with the exercise of any director’s independent judgment.
	Canadian securities legislation (Multilateral Instrument 52-110 - Audit Committees (“MI 52-110”)) clarifies the meaning of “independence” concerning both Audit Committee members and the Board of Directors as a whole. In September, 2005, the Corporation’s board of directors approved “Independence Standards” for the Board of Directors which are largely based on MI 52-110. A copy of the Corporation’s Independence Standards is attached to this Management Proxy Circular as Appendix 3. The Corporation’s Independence Standards are also posted on the Corporation’s website at www.shell.ca.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

Shell Canada has ten directors listed below (Mr. Loader, a director since 2003, will not be standing for re-election at the Meeting and Mr. Odum is a director nominee). Seven of these ten directors (70%) meet the independence standards as set out by MI 52-110 and the Corporation’s Independence Standards.

Name	Independent	Non-Independent
Derek H. Burney	ü
Ida J. Goodreau	ü
Kerry L. Hawkins	ü
David W. Kerr	ü
W. Adrian Loader		ü
Clive Mather		ü
Marvin E. Odum		ü
Ronald W. Osborne	ü
Rob J. Routs		ü
Raymond Royer	ü
Nancy C. Southern	ü

All committees of the Corporation are also composed of independent directors.

b) Disclose the identity of directors who are not independent, and describe the basis for that determination.

Clive Mather, Rob J. Routs, W. Adrian Loader and Marvin E. Odum are considered non-independent directors and, as a result, are not members of any board committees of Shell Canada. Mr. Loader will not be standing for re-election at the 2006 Annual and Special Meeting of Shareholders. Mr. Odum will be standing for election at the 2006 Annual and Special Meeting of Shareholders as a director nominee. Explanations for the determination of these directors’ non-independence is as follows:

Non-Independent
Directors	Explanatory Note for Non-Independence Determination
Clive Mather	Mr. Mather is an executive officer of the Corporation. In addition, Mr. Mather received more than $75,000 in direct compensation from the Corporation during the last 12 month period. Mr. Mather is therefore considered a non-independent director within the meaning set out in MI 52-110.
	Detailed information regarding Mr. Mather’s compensation can be found on pages 39 to 41 of the Management Proxy Circular.
W. Adrian Loader	Shell Investments Limited (“SIL”) holds approximately 78 per cent of the equity and voting rights of Shell Canada. SIL is a Canadian company, wholly owned by Shell Petroleum N.V. of the Netherlands, which in turn is owned by Royal Dutch Shell plc (“RDS”).
	Mr. Loader is Director, Strategy and Business Development for RDS. Mr. Loader is therefore considered a non-independent director within the meaning set out in MI 52-110 and the Corporation’s Independence Standards.
Rob J. Routs	Mr. Routs is an Executive Director of RDS, the majority shareholder of Shell Canada. Mr. Routs is therefore considered a non-independent director within the meaning set out in MI 52-110 and the Corporation’s Independence Standards.
Marvin E. Odum	Mr. Odum is currently Executive Vice President – Americas for Shell Exploration and Production. As an employee of an affiliate of RDS, Mr. Odum is considered a non-independent director within the meaning set out in MI 52-110 and the Corporation’s Independence Standards.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

	Each year, the Board is required to complete individual questionnaires, which, among other things, requires the directors to disclose in writing, any material business relationships they, or their associates, may have with the Corporation.
	The Board believes the following relationships are not “material” and do not affect the independent director status of any of the noted directors. None of the independent directors have received remuneration from the Corporation, other than directors’ fees.
	Derek H. Burney is 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.
	Ida J. Goodreau was a director of Terasen Inc. from November, 2002 to December, 2005. 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.
	Kerry L. Hawkins is 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.
	David W. Kerr is Chairman and a director of Falconbridge Limited which purchases fuel and other supplies from the Corporation. Mr. Kerr is also a director 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.
	Ronald W. Osborne is Chairman of the Board 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.
	Nancy C. Southern is an officer and director of ATCO Ltd. and Canadian Utilities Limited. ATCO companies own a natural gas pipeline that provides natural gas and two cogeneration plants that provide electricity to the Athabasca Oil Sands Project. Ms. Southern is also a director of the Bank of Montreal. During 2005, 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 to 21 of the Management Proxy Circular.
c)  Disclose whether or not a majority of directors are independent. If a majority of directors are not independent, describe what the board of directors does to facilitate its exercise of independent judgment in carrying out its responsibilities.	Seven of Shell Canada’s ten directors (70%) meet the independence standards established by MI 52-110 and the Corporation’s Independence Standards.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

	Name of Director	Directorships with Other Reporting Issuers
d) If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or foreign jurisdiction, identify both the director and other issuer.	Derek H. Burney	CanWest Global Communications Corp. CanWest MediaWorks Inc. TransCanada Pipelines Limited TransCanada Corporation
	Ida J. Goodreau	Terasen Inc. (resigned from Terasen Inc.’s board of directors in December, 2005)
	Kerry L. Hawkins	TransCanada Pipelines Limited TransCanada Corporation Hudson’s Bay Company Nova Chemicals Corporation
	David W. Kerr	Sun Life Financial Inc. Brookfield Asset Management Inc. Falconbridge Limited
	W. Adrian Loader	Alliance Unichem plc
	Clive Mather	Placer Dome Inc. (resigned from Placer Dome Inc.’s board of directors in January, 2006)
	Marvin E. Odum	—
	Ronald W. Osborne	Sun Life Financial Inc. Sun Life Assurance Company of Canada (not publicly traded) Massachusetts Financial Services Company (not publicly traded) Torstar Corporation St. Lawrence Cement Group Inc. Four Seasons Hotels Inc. Nortel Networks Corporation Nortel Networks Limited RioCan Real Estate Investment Trust
	Rob J. Routs	—
	Raymond Royer	Domtar Inc. Power Financial Corporation
	Nancy C. Southern	ATCO Ltd. Canadian Utilities Limited Bank of Montreal Akita Drilling Ltd. CU Inc.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

e)  Disclose whether or not the independent directors hold regularly scheduled meetings at which non-independent directors and members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held since the beginning of the issuer’s most recently completed financial year. If the independent directors do not hold such meetings, describe what the board does to facilitate open and candid discussion among its independent directors.

In camera sessions are held after each Board and committee meeting. In addition, Directors are invited to hold in camera sessions at any other time. During these sessions of the independent directors, members of management and non-independent directors are not present. Shell Canada believes that these in camera sessions contribute to the Board’s independent oversight. In 2005, the Board of Directors initiated the practice of holding a separate meeting prior to each Board meeting, without the non-independent directors or any members of management present. In 2005, two meetings of the independent directors were held. In 2006, it is expected that meetings of the independent directors will be held prior to all Board meetings.

In 2005, the following meetings were held:

	Total	In-Camera
Board/Committee/Other	No. of Meetings	Sessions
Board Meetings (Regular)	7	Yes
Board Meetings (Special)	5	No
Audit Committee	7	Yes
Management Resources and Compensation Committee	5	Yes
Nominating and Governance Committee	4	Yes
Reserves Committee	4	Yes
Meetings of the Independent Directors	2	N/A
Special board meetings are held from time to time. In-camera sessions are not normally held at these meetings unless specifically requested by the independent members of the Board.
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  NI 58-101 Shell Canada’s Corporate Governance Practices            

f)  Disclose whether or not the chair of the board is an independent director. If the board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities. If the board has neither a chair that is independent nor a lead director that is independent, describe what the board does to provide leadership for its independent directors.	Rob J. Routs was appointed Chairman of the Meetings of the Board on April 29, 2005. Mr. Routs is not considered an independent director. To compliment this role, Derek H. Burney, an independent director, was appointed Lead Director on April 29, 2005. Mr. Burney’s role and responsibilities as Lead Director are as follows: a)  Ensure that the Board functions independently of management of the Corporation. b) Ensure that independent directors have adequate opportunities to meet to discuss issues without management present. c)  Chair separate meetings of the independent directors. d) Represent the independent directors in communications with shareholders, as appropriate. e)  Be available to directors who have concerns that cannot be addressed through the Chairman of the Meetings of the Board. f)  Perform such other functions as may be reasonably requested by the Board or the Chairman of the Meetings of the Board.
g) Disclose the attendance record of each director for all board meetings held since the beginning of the issuer’s most recently completed financial year.	The attendance record for the members of the Board and each Committee can be found in Part II of this Circular under “Committee Memberships and Record of Attendance by Directors” on page 20.
2) Board Mandate Disclose the text of the board’s written mandate. If the board does not have a written mandate, describe how the board delineates its role and responsibilities.	The text of the Board of Directors mandate is as follows: (a) Oversee the development and implementation of the annual strategic, financial and operating plans, including annual targets, and approve the annual Capital and Exploration budget. (b) Ensure that management establishes an effective Health, Safety and Environment Management Plan and maintains it in conformity with current standards.
	(c) 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.
	(d) Ensure that management implements and maintains appropriate internal controls and management information systems.
	(e) Oversee succession plans and relevant management development plans.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

(f) 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.

(g) Appoint the President and Chief Executive Officer and other officers of the Corporation.

(h) Appoint an Audit Committee comprised of independent directors.

(i) 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.

(j) Comply with the Corporation’s by-laws and the statutory and fiduciary obligations which generally exist for directors of publicly traded companies in Canada.

(k) 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.

(l) Satisfy itself as to the integrity of the Chief Executive Officer and other executive officers of Corporation and ensure that senior management creates a culture of integrity throughout the Corporation.

(m) Establish and maintain a set of governance principles for the Corporation including practices that ensure that the Board functions independently of management.

The mandates of the Audit Committee, the Management Resources and Compensation Committee, the Pension Subcommittee, the Nominating and Governance Committee, the Reserves Committee and the Health, Safety, Environment & Social Responsibility Committee can be found in Appendix 1 of this Circular. The Charters of the Audit Committee, the Management Resources and Compensation Committee, the Pension Subcommittee, the Nominating and Governance Committee, the Reserves Committee and the Health, Safety, Environment & Social Responsibility Committee can be found on the Corporation’s website at www.shell.ca. Printed copies of all Charters will also be provided upon request to the Corporation’s Secretary.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

3) Position Descriptions
a)  Disclose whether or not the board has developed written position descriptions for the chair and the chair of each board committee. If the board has not developed written position descriptions for the chair and/or the chair of each board committee, briefly describe how the board delineates the role and responsibilities of each such position.	The Board has developed written position descriptions for the following: •   Chairman of the Meetings of the Board (Rob J. Routs) •   Lead Director (Derek H. Burney) •   Chief Executive Officer (Clive Mather) •   Committee Chair (Derek H. Burney, Kerry L. Hawkins, David W. Kerr, Ronald W. Osborne, Nancy C. Southern)
b) Disclose whether or not the board and CEO have developed a written position description for the CEO. If the board and CEO have not developed such a position description, briefly describe how the board delineates the role and responsibilities of the CEO.	The Board has developed a written position description for the President and CEO. All position descriptions can be found on the Corporation’s website at www.shell.ca. Copies of the position descriptions can also be obtained upon request to the Corporation’s Secretary.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

4) Orientation and Continuing Education
a)  Briefly describe what measures the board takes to orient new directors regarding    i)  the role of the board, its committees and its directors, and    ii) the nature and operation of the issuer’s business. b) Briefly describe what measures, if any, the board takes to provide continuing education for its directors. If the board does not provide continuing education, describe how the board ensures that its directors maintain the skill and knowledge necessary to meet their obligations as directors.	The Nominating and Governance Committee is responsible for the orientation and education of new directors concerning the business of the Corporation. New directors are provided with a Directors’ Handbook which contains details of the Corporation’s operations and information on board composition, duties and obligations of the directors, position descriptions, board and committee charters, directors’ insurance and remuneration. The Directors’ Handbook also includes schedules of upcoming Board meetings and key contact information for the Board and senior management personnel. The Corporation tailors its orientation program to take into account each new director’s unique mix of skills, experience, education, knowledge and needs. The Corporation’s newest director, Rob J. Routs, participated in an orientation process in 2005 that included: 1)  Receiving the Corporation’s most recent annual disclosure documents, including the annual report and annual information form; 2)  Receiving the Shell Canada Limited Directors’ Handbook; 3)  Receiving the minutes and the agendas for the previous six board meetings; 4)  Meeting, on two separate occasions, with the President and Chief Executive Officer and the senior management team whereby Mr. Routs was provided with an overview of the Corporation’s organizational structure, strategy and financial plan as well as information on the role of the board and committees and the expected contributions of individual directors.
	The senior management team and other employees of the Corporation are available at all times to have informal discussions on any topics of interest requested by the Board. The Board of Directors is also provided with the opportunity to meet with the President and Chief Executive Officer to discuss operational and other matters at any time.
	All Board and committee briefing materials are sent to the Board and committees in a timely manner so that they receive this information well in advance of each Board meeting and have the appropriate time to prepare. For each Board and committee meeting, the agendas are set to allow ample time for discussion and inquiry to ensure that the Board of Directors and committee members have sufficient opportunity to gain a clear understanding of the issues that are addressed. Senior management regularly makes presentations at Board and committee meetings on topics of which the Board of Directors and committee members have expressed an interest. The Chairs of the committees of the Board provide regular reports to the Board on activities completed by each committee and all members of the Board are invited to observe the meetings of any committees of which they are not already a member. From time to time, external professional advisors are invited to join the Board for informal discussions on topics of interest.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

	The Board participates in strategic planning sessions on an annual basis and the President and Chief Executive Officer selects educational topics for presentation and discussion. Key topics discussed at the September, 2005 strategic planning session included economic outlook and prices, demographics, labor supply, and the political and regulatory landscape.
	The Corporation regularly offers its Board the opportunity to visit operating sites and facilities with the intention of increasing their knowledge of the businesses of the Corporation and acquainting them with the management of these operating sites and facilities. In 2005, directors were invited to participate in tours of the Sarnia Refinery and the Montreal East Refinery where they received in-depth tours and presentations on the businesses of those facilities. Tours of certain of the Corporation’s retail outlets have also been provided to the Board in 2005.
	The Corporation also maintains a continuing education program for its directors. All members of the Board are given the opportunity to enroll in approved professional development programs at the expense of the Corporation. These programs must be first approved by the Nominating and Governance Committee. Directors are also encouraged to join professional associations to enhance their knowledge of their role as a corporate director and committee member. From time to time, the Corporation may also distribute texts on topics of interest to the Board in the area of corporate governance.
	All members of the Board are members of the Institute of Corporate Directors.
5) Ethical Business Conduct
a)  Disclose whether or not the board has adopted a written code for the directors, officers and employees. If the board has adopted a written code:	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.
i)  disclose how a person or company may obtain a copy of the code;	Copies of the Corporation’s Statement of General Business Principles and the Code of Ethics can be found on the Corporation’s website at www.shell.ca. Printed versions of these documents are also available upon request to the Corporation’s Secretary.
ii) describe how the board monitors compliance with its code, or if the board does not monitor compliance, explain whether and how the board satisfies itself regarding compliance with its code; and	The Audit Committee meets regularly with management and, independently of management, the internal and external auditors to review compliance with the Corporation’s Statement of General Business Principles and Code of Ethics.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

iii) provide a cross- reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.	The Corporation has not filed any material change report that pertains to any conduct of a director or executive officer that constitutes a departure from the code.
b) Describe any steps the board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.	In the ordinary course of business, the Corporation and its subsidiaries enter into transactions with which the 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)  Describe any other steps the board takes to encourage and promote a culture of ethical business conduct.	The Board receives from the President and Chief Executive Officer annual assurance letters on the Statement of General Business Principles and Code of Ethics and a wide range of business procedures, policies and practices.
6) Nomination of Directors
a)  Describe the process by which the board identifies new candidates for board nomination.	The Nominating and Governance Committee is responsible for determining the selection criteria for new nominees and for assisting the President and Chief Executive Officer in proposing new nominees to the Board. 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 also periodically assesses the skill sets of the current Board members by considering individual director talents and board requirements to identify the required skills that the Committee deems beneficial to the board structure. The committee maintains an evergreen 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.

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

b) Disclose whether or not the board has a nominating committee composed entirely of independent directors. If the board does not have a nominating committee composed entirely of independent directors, describe what steps the board takes to encourage an objective nomination process.	The Board has a Nominating and Governance Committee composed entirely of independent directors. The four members of the Nominating and Governance Committee are: 1) Derek H. Burney (Chairman) 2) Kerry L. Hawkins 3) David W. Kerr 4) Nancy C. Southern
c)  If the board has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.	The mandate of the Nominating and Governance Committee can be found in Appendix 1 of this Circular. The Charter of the Nominating and Governance Committee can be found on the Corporation’s website at www.shell.ca. A printed copy of the Charter will also be provided upon request to the Corporation’s Secretary.
7) Compensation
a)  Describe the process by which the board determines the compensation for the issuer’s directors and officers.	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 Nominating and Governance 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. Additional information on directors’ compensation can be found on pages 17 to 19 of the Management Proxy Circular. The Management Resources and Compensation Committee reviews and determines the compensation of the President and Chief Executive Officer and reviews and approves the annual recommendations of the President and Chief Executive Officer with respect to the base salaries of senior management.
b) Disclose whether or not the board has a compensation committee composed entirely of independent directors. If the board does not have a compensation committee composed entirely of independent directors, describe what steps the board takes to ensure an objective process for determining such compensation.	The board has a Management Resources and Compensation Committee that is composed entirely of independent directors. The five members of the Management Resources and Compensation Committee are: 1) Ronald W. Osborne (Chairman) 2) Derek H. Burney 3) Ida J. Goodreau 4) Raymond Royer 5) Nancy C. Southern

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c)  If the board has a compensation committee, describe the responsibilities, powers and operation of the compensation committee.	The mandate of the Management Resources and Compensation Committee can be found in Appendix 1 of this Circular. The Charter of the Management Resources and Compensation Committee can be found on the Corporation’s website at www.shell.ca. A printed copy of the Charter will also be provided upon request to the Corporation’s Secretary.
d) If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining the compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.	In 2004, John T. Dinner Board Governance Services (“JTD”) was retained by the Nominating and Governance Committee to provide consultation with respect to board compensation practices for 2005. JTD provided an overview of board compensation practice, both at peer companies and other large cap Canadian firms. JTD also conducted research and provided analysis with respect to prevailing board compensation trends, director remuneration best practices and emerging investor expectations. Total compensation paid to JTD in 2005 was $28,980.00. JTD did not provide any other services to the Corporation in 2005. In 2005, Towers Perrin was retained by the Management Resources and Compensation Committee to provide consultation with respect to senior management compensation practices. Towers Perrin reviewed market compensation and benefits for the Corporation’s executives, including the President and Chief Executive Officer, and the design of the Corporation’s Long Term Incentive Plan. Total compensation paid to Towers Perrin in 2005 was $115,000. Towers Perrin did not provide any other services to the Corporation in 2005.
8) Other Board Committees If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.	In addition to the Audit Committee, the Management Resources and Compensation Committee and the Nominating and Governance Committee, the Corporation also has the following committees: Reserves Committee (appointed September, 2004) Members of the Reserves Committee are: 1) David W. Kerr (Chair) 2) Derek H. Burney 3) Kerry L. Hawkins 4) Ronald W. Osborne

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  NI 58-101 Shell Canada’s Corporate Governance Practices            

	Health, Safety, Environment & Social Responsibility Committee (appointed November, 2005)
	Members of the Health, Safety, Environment & Social Responsibility Committee are: 1) Nancy C. Southern (Chair) 2) Derek H. Burney 3) Ida J. Goodreau 4) Kerry L. Hawkins 5) David W. Kerr
	Pension Subcommittee (appointed March, 2006) Members of the Pension Subcommittee are: 1) Ronald W. Osborne (Chairman) 2) Derek H. Burney 3) Ida J. Goodreau 4) Raymond Royer 5) Nancy C. Southern All members of these committees are independent directors.
	The full text of the mandates of the Reserves Committee, the Health, Safety, Environment & Social Responsibility Committee and the Pension Subcommittee can be found in Appendix 1 of this Circular, as well as on the Corporation’s website at www.shell.ca. Printed copies of the Charters will also be provided upon request to the Corporation’s Secretary.
9) Assessments Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the board satisfies itself that the board, its committees, and its individual directors are performing effectively.	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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APPENDIX 3: INDEPENDENCE STANDARDS

Background

The Board of Directors of Shell Canada Limited has adopted the independence standards set out in this document. These standards are derived from the Canadian Securities Administrators National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) and Multilateral Instrument 52-110 Audit Committees (“MI 52-110”) which require an issuer to specifically determine whether or not each of its directors is independent and to provide disclosure of the independence determination in its annual management proxy circular.

For the purposes of the independence criteria as set out in this document, any references to “issuer” or “Shell Canada” shall include any of its subsidiaries and its majority shareholder.

Independence

Pursuant to the terms of the Charters of the Audit Committee, the Management Resources and Compensation Committee, the Nominating and Governance Committee, the Reserves Committee and the Health, Safety, Environment and Social Responsibility Committee, all directors serving on these committees must be independent. The majority of the Board of Directors must also be independent.

The Board of Directors and the committees of Shell Canada will meet independently from management and non-independent directors during in-camera sessions at each scheduled Board of Directors or committee meeting.

Independence Criteria

A member of the Board of Directors is independent if he or she has no direct or indirect material relationship with the issuer. A material relationship is a relationship which could, in the view of the Nominating and Governance Committee (the “Committee”), be reasonably expected to interfere with the exercise of a member’s independent judgment.

The following individuals are deemed to have a material relationship with Shell Canada:

1)	An individual who is, or has been within the last three years, an employee or executive officer of Shell Canada.
2)	An individual whose immediate family member is, or has been within the last three years, an executive officer of Shell Canada.
3)	An individual who:

a)	is a partner of a firm that is Shell Canada’s internal or external auditor;
b)	is an employee of that firm; or
c)	was within the past three years a partner or employee of that firm and personally worked on Shell Canada’s audit within that time.

4) An individual whose spouse, minor child or stepchild, or child or stepchild who shares a home with the individual:

a)	is a partner of a firm that is Shell Canada’s internal or external auditor;
b)	is an employee of that firm and participates in its audit, assurance or tax compliance (but not tax planning) practice, or
c)	was within the last three years a partner or employee of that firm and personally worked on Shell Canada’s audit within that time.

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5)	An individual who, or whose immediate family member, is or has been within the last three years, an executive officer of an entity if any of Shell Canada’s current executive officers serves or served at that same time on the entity’s compensation committee.
6)	An individual who received, or whose immediate family member who is employed as an executive officer of Shell Canada received, more than $75,000 in direct compensation from Shell Canada during any 12 month period within the last three years.

     Direct compensation does not include:

a)	remuneration for acting as a member of the board of directors or of any board committee of Shell Canada; and
b)	the receipt of fixed amounts of compensation under a retirement plan for prior service with Shell Canada if the compensation is not contingent in any way on continued service.

7) An individual who:

a)	accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the issuer or any subsidiary entity of the issuer, other than as remuneration for acting in his or her capacity as a member of the Board of Directors or any committee, or as a part-time chair or vice-chair of the board or any board committee; or
b)	is an affiliated entity of the issuer or any of its subsidiary entities,

      is considered to have a material relationship with Shell Canada.

Annual Review

The Committee will conduct annual reviews of the independence standards set out by MI 52-110 and will disclose the independence determinations in the annual management proxy circular.

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APPENDIX 4: GLOSSARY OF TERMS AND COMMONLY USED ACRONYMS

Amount at Risk

Amount at risk is the amount of money that is invested in the Common Shares and DSUs of the Corporation that is exposed to the possibility of loss.

Average Final Yearly Maximum Pensionable Earnings

The Average Final Yearly Maximum Pensionable Earnings are used in the pension formula for service prior to 1994. It is the average of the years’ maximum pensionable earnings which is the maximum earnings on which Quebec and the Canada Pension Plan is based within a given year.

Ballot

A ballot is a formal record of a vote.

Beneficial Shareholder

You are a beneficial shareholder if your Common Shares are not held in your own name but in the name of a nominee such as your bank, broker or trust company.

Business Unit

A Business Unit is a segment of the Corporation that exercises control over the strategic factors affecting its performance. A Business Unit has its own strategy, objectives and competitors within the larger corporate context.

Common Shares

Common Shares are securities representing equity ownership in Shell Canada Limited, providing voting rights and entitling the holder to a share of the Corporation’s success through dividends and/or capital appreciation.

Comparator Group

The comparator group refers to selected oil and gas organizations that are of comparable scope, size and complexity to the Corporation, and are representative of the types of organizations with which the Corporation must compete for talent.

Dilution

The decrease in ownership percentage of current share owners when additional shares are issued.

Discretionary Authority

If you are not attending the Meeting in person, the individual you appoint on your proxy to vote your shares will have the authority to vote at his or her discretion on matters that are not specifically set out in the Notice of Meeting as well as on any variations to the matters that are set out in the Notice of Meeting.

Expatriate

An expatriate is a person who temporarily works and lives in a foreign country.

Interlocks

An interlock occurs when two or more directors sit together on two or more boards of directors of publicly listed companies.

MD&A

The Management’s Discussion and Analysis or MD&A is the section in a quarterly or annual report in which management describes the prior period and the current outlook.

Named Executive Officer

Named Executive Officer or “NEO” means the following individuals: the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”) and each of the company’s three most highly compensated executive officers, who were serving as executive officers at the end of the most recently completed financial year or any additional individuals for whom disclosure would have been provided except that they were not serving as an officer at the end of the most recently completed year-end.

Nominee

If you are a non-registered shareholder, your shares will be held by a nominee. A nominee may be your stockbroker, your bank or a trust company.

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Option

Through the Long Term Incentive Plan, individuals are awarded Options to purchase Common Shares with attached tandem share appreciation rights (“SARs”). A SAR gives the recipient of an Option the right to surrender the exercisable Option in return for a cash payment equal to the appreciation in share price.

Perquisites

A perquisite is a payment or benefit received incidental to regular wages (ie. housing allowance).

Proxy

If you are a shareholder of the Corporation, either a Proxy (for registered shareholders) or a Voting Instruction Form (“VIF”) (for non-registered shareholders) will be included with your Management Proxy Circular. A Proxy or VIF allows you to appoint another person or company to vote your shares for you in the event that you are unable to attend the annual meeting. A Proxy or VIF denotes the business that is to be acted upon at the annual meeting of shareholders.

Proxyholder

A proxyholder is the person you appoint to attend, speak at, vote by ballot and otherwise act at the annual meeting on your behalf. If you choose to specify how you want your shares voted on a particular matter, your proxyholder is obligated to vote your shares that way on any ballot that may be called for at the Meeting. If you do not choose to specify how you want your shares to be voted, your proxyholder has discretionary authority to vote your shares in any manner they wish.

Quorum

To properly transact the business of any annual meeting of shareholders, there must be a minimum number of people present at the meeting, either in person or by proxy. In other words, there must be a quorum in order for any decisions to be binding. Shell Canada’s by-laws require that at least two persons must be present at the annual meeting and these two persons must represent, either in person or by proxy, a majority of the outstanding voting shares.

Record Date

The Corporation is required by law to establish a record date that is no fewer than 30 days and no more than 60 days before the annual meeting date. The record date is established for the purpose of determining which shareholders are entitled to receive notice of the annual meeting of shareholders or the shareholders that are entitled to vote at the annual meeting of shareholders. March 10, 2006 is the record date that has been established for the 2006 Annual and Special Meeting of Shareholders.

Registered Office of the Corporation

The registered office of Shell Canada Limited is 400 – 4th Avenue SW, Calgary, Alberta, T2P 2H5.

Registered Shareholder

You are a registered shareholder if your Common Shares are held in your name. You will usually have a share certificate denoting your ownership in the shares.

Reporting Issuer

A reporting issuer is any company who offers securities to the public and those securities that are offered are listed on a recognized stock exchange (ie. Toronto Stock Exchange, New York Stock Exchange).

Return on Average Capital Employed

A measure which shows the return on the average capital employed of the company.

Revocation of Proxy

If you submit your proxy and subsequently change your mind, you must replace your original proxy with a later-dated instruction (either in the form of a new proxy or a letter).

Scorecard

The scorecard is an annual system that identifies, communicates and monitors progress of key performance metrics of the Corporation. The Corporation’s annual incentive program for all staff employees rewards employees based on the degree

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to which specific pre-established corporate and business unit targets are met.

Share Appreciation Rights

Share Appreciation Rights or “SARs” are a cash payment feature which provide stock option holders the right to surrender an exercisable option for cancellation in return for a cash payment from the Corporation equal to the “in-the-money” amount of the option.

Share Split

A share split is an increase in the number of outstanding shares of a company’s stock, such that the proportionate equity of each shareholder remains the same.

Solicitation of Proxies

Proxy solicitation is the process of acquiring votes and support for the matters to be voted on.

Strike Price

The closing market price of Common Shares on the Toronto Stock Exchange on the date of an Option grant.

Total Recordable Injury Frequency

Total Recordable Injury Frequency is a measure of the frequency of injuries per 200,000 hours worked. A Recordable Injury has a specific set of qualifying criteria that includes medical treatment, restricted work and lost workday cases, as well as fatalities. It does not include first aid treatment cases.

Total Shareholder Return

Measures the increase in value to the shareholder for one year due to share price appreciation plus dividends reinvested in shares throughout the period relative to a comparator group of companies.

Voting Instruction Form

If you are a non-registered shareholder, you will receive a Voting Instruction Form or “VIF” rather than a proxy. The VIF will be included with your Management Proxy Circular. A VIF or Proxy allows you to appoint another person or company to vote your shares for you in the event that you are unable to attend the annual meeting. A VIF or Proxy denotes the business that is to be acted upon at the annual meeting of shareholders.

Commonly Used Acronyms

AFYMPE:  Average Final Yearly Maximum Pensionable Earnings

DSU:	Deferred Share Unit
LTIP:	Long Term Incentive Plan
RDS:	Royal Dutch Shell plc
ROACE:	Return on Average Capital Employed
SAR:	Share Appreciation Right
SEEUS:	Shell Expatriate Employment US Inc.
SIL:	Shell Investments Limited
SOCPF:	The Shell Overseas Contributory Pension Fund
TRIF:	Total Recordable Injury Frequency
TSR:	Total Shareholder Return
TSX:	Toronto Stock Exchange

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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

2006 Annual and Special Meeting of Shareholders

The undersigned shareholder hereby appoints Cathy L. Williams, whom failing Shannon L. Cosmescu, 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, 2006, for and on behalf of the undersigned at the Annual and Special Meeting of Shareholders to be held on April 28, 2006 at 11:00 a.m., 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.

1) ELECTION OF DIRECTORS

	For	Withhold		For	Withhold
Derek H. Burney	o	o	Marvin E. Odum	o	o
Ida J. Goodreau	o	o	Ronald W. Osborne	o	o
Kerry L. Hawkins	o	o	Rob J. Routs	o	o
David W. Kerr	o	o	Raymond Royer	o	o
Clive Mather	o	o	Nancy C. Southern	o	o

2) FOR o or WITHHOLD AUTHORITY FROM VOTING o

as to the appointment of PricewaterhouseCoopers LLP as auditors of the Corporation and the directors’ authorization to fix the auditors’ remuneration.

3) FOR o or AGAINST o or WITHHOLD AUTHORITY FROM VOTING o

as to the Special Resolution to authorize management of the Corporation to amend the Articles of the Corporation on the terms set forth in the accompanying Management Proxy Circular.

4) In his or her discretion as to any amendments or variations to the matters identified in 1), 2) or 3) 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.

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 and MD&A, please check the box.

INTERIM FINANCIAL
STATEMENTS AND MD&A      o

Receipt of the Management Proxy Circular is hereby acknowledged.

DATED: ___________________________________ , 2006

_________________________________________________

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.