DBRS Confirms Petro-Canada at A (low), R-1 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the ratings of Petro-Canada (the “Company”) as indicated above. The ratings for Petro-Canada are confirmed based on the Company’s strong cash flow and financial position which are expected to continue in 2006.

The Company has significantly transformed its oil and gas operations through international investments, oil sands development, and North American natural gas initiatives over the past few years as it sought ways to offset its mature and declining western Canadian conventional business.

However, the repositioning is a multi-year process, and Petro-Canada has taken on longer lead time projects that require significant initial capital while providing limited near-term cash flow. This has contributed to poor near-term internal reserve replacement performance and a low reserve life index of only eight years (6.4 years for conventional proved reserves) in 2004 that is below peer averages. Based on initial 2005 results for gross proved reserves, the Company continued to underperform.

The Company’s significant investments in the oil sands business through its purchase of an interest in the Fort Hills oil sands project in 2005, as well as Syncrude and MacKay River expansions, should provide substantial growth underpinned by long-life reserves with minimal exploration risk. Petro-Canada’s longer term target is to grow its oil sands business to 200,000 barrels per day (b/d) by about 2015 compared with 46,500 b/d in 2005.

The Company has also taken an integrated approach to its oil sands business and conversion of its Edmonton, Alberta, refinery to handle oil sands-based feedstock for Cdn$1.6 billion (to be completed in 2008), allowing the Company to participate along the value chain.

Petro-Canada is also expanding its North American natural gas platform including, potentially, investments in liquefied natural gas (LNG), which should better position the Company longer term to benefit from positive supply/demand fundamentals.

In the near term, political risk for Petro-Canada has likely decreased, given the Company’s divestment of its producing assets in Syria, but will be an ongoing challenge over the medium term as the Company looks abroad for growth. The U.K. North Sea will also be an area of growth for Petro-Canada over the medium term, with the Buzzard field development expected to start up in late 2006 and reach plateau levels of 60,000 b/d (net to Petro-Canada) in 2008.

The Company’s balance sheet ratios compare well with its peers, cash flow in 2006 should be above expected capital spending of Cdn$3.4 billion, and share repurchases are expected to be managed conservatively.

However, the pursuit of acquisitions in a competitive market has resulted in the Company paying high prices for transactions on a proved reserves basis in recent years. This has contributed to rising reserve replacement costs, which has been an industry challenge.

The Company’s profitability should remain strong in 2006 given the strong oil and gas price environment, but Petro-Canada’s repositioning efforts in both the upstream and downstream segments will be a multi-year process. This could result in continued below-average performance in some of Petro-Canada’s operational metrics in the near term.

Note:
The rating on the Senior Notes of PC Financial Partnership is based on the unconditional and irrevocable guarantee of Petro-Canada.