Shell Canada Earnings Climb

Shell Canada Limited announces earnings of $447 million or $0.54 per common share in the first quarter of 2006 compared with $417 million or $0.51 per common share for the same period in 2005. Strong commodity prices and refining margins contributed to the quarter-over-quarter increase.

Cash flow from operations for the first three months of 2006 was $722 million, up $85 million from $637 million compared with the first quarter of 2005.

Capital and predevelopment expenditures amounted to $404 million in the first quarter of 2006 compared with $269 million for the corresponding period in 2005. Major expenditures in 2006 were in support of the Company's growth plans in Oil Sands and the gas business.

"The strength of Shell Canada's integrated business was demonstrated by our first-quarter performance," said Clive Mather, President and Chief Executive Officer, Shell Canada Limited. "The Oil Products business achieved record quarterly earnings. The E&P business has increased drilling activity and committed to debottleneck infrastructure constraints in the basin-centred gas business. Oil Sands performance was impacted by the conveyor belt replacement, but the business has recovered quickly to full production."

	    Earnings ($ millions)
	                               Q1 05     Q2 05     Q3 05     Q4 05     Q1 06
	                                 417       526       457       614       447

	    Cash Flow ($ millions)
	                               Q1 05     Q2 05     Q3 05     Q4 05     Q1 06
	                                 637       803       686       930       722

	    Capital Expenditures
	     ($ millions)
	                               Q1 05     Q2 05     Q3 05     Q4 05     Q1 06
	                                 269       327       410       709       404

SHELL CANADA LIMITED MANAGEMENT'S DISCUSSION AND ANALYSIS

Total Company

Shell Canada Limited earnings for the first quarter of 2006 were $447 million, up $30 million from $417 million for the corresponding quarter of 2005, which included a favourable adjustment of $59 million. The adjustment related to the use of non-capital losses available to the Company resulting from the acquisition of an affiliated company, Coral Resources Canada ULC. In the first quarter of 2006, strong commodity prices and refining margins offset higher costs. The impact of the Company's Long Term Incentive Plan resulted in a $5 million recovery to first-quarter 2006 earnings compared with a $25 million charge for the same period in 2005. Total hydrocarbon production for the quarter was 210,600 barrels of oil equivalent per day (BOE/d) compared with 211,300 BOE/d in the first quarter of 2005.

Exploration & Production

Exploration & Production (E&P) earnings in the first quarter of 2006 were $173 million, up $37 million from $136 million for the corresponding period in 2005. Gains from strong commodity prices were partially offset by higher operating costs. These costs primarily resulted from processing fees associated with new natural gas production from Tay River and the basin-centred gas (BCG) business, and higher exploration costs. Effective January 1, 2006, the Peace River business was transferred from E&P to the Oil Sands business unit. Prior period E&P earnings have been adjusted to exclude Peace River operations.

Total natural gas production was higher for the first quarter of 2006 compared with both the prior quarter and the first quarter of 2005. Increases from the Tay River discovery and BCG more than offset natural field decline. The Company expects gas production volumes for the second quarter of 2006 to be slightly lower than for the first quarter of 2006 as a result of planned plant turnaround activity.

Within the Foothills business, the drilling of two new wells began in the same area as the initial Tay River discovery well drilled in 2004. One is an exploration well, which will test a new structure, and the other is a development well, which will help delineate the original discovery. The Company will consider further follow-up drilling in the Tay area, depending on results.

BCG production from the Chinook Ridge region of the Deep Basin area began in November 2005 and continued through the first quarter of 2006 at 15mmcf/d. The current lack of infrastructure continues to limit BCG production in the area. To alleviate these constraints, the Company recently committed to an expansion of a third party gas plant in the area, rather than building a new plant. This expansion, together with the installation of field compression and additional gathering system capacity, will accommodate the Company's increasing natural gas production in this area. Completion of these projects is planned for 2007. Success at Crown land sales over the first quarter of 2006 enabled the Company to continue to build its BCG land position to support business growth.

Within the Sable Offshore Energy Project, a third well in the Alma field has been drilled and completed in 2006 and production has begun. Construction on the compression project continues with installation and start-up expected late 2006.

Following the Orphan Basin three-dimensional seismic programs conducted in 2004 and 2005, a drilling location has been selected for the first well, which is planned for the second half of 2006.

Oil Sands

Oil Sands earnings in the first quarter of 2006 were $120 million, up $22 million from $98 million for the corresponding period in 2005. Higher prices were partially offset by higher operating expenses. Earnings from the Peace River in-situ operations are included in both current and prior period earnings.

The Company's share of Athabasca Oil Sands Project (AOSP) bitumen production for the first quarter of 2006 averaged 77,400 barrels per day (bbls/d) compared with 79,000 bbls/d for the same period in 2005. As previously disclosed, in late February 2006 a major tear occurred in the conveyor belt that transports ore from the crushers in the mine to the bitumen extraction plant. As a result, production at both the mine and upgrader was significantly reduced. The conveyor belt was successfully replaced and the upgrader and mine returned to full operations by mid-March. Production levels for the first quarters of 2005 and 2006 were similar because production at the Scotford Upgrader was also reduced in the first quarter of 2005 due to two partial unplanned shutdowns.

In the first quarter of 2006, underlying commodity prices and the average synthetic crude oil price were stronger than in the first quarter of 2005. Heavy oil market differentials widened during the first quarter of 2006 and were considerably wider than those in the corresponding period of 2005. The average synthetic crude oil price differential relative to Edmonton light crude improved slightly from the previous quarter but was considerably wider than in the first quarter of 2005.

Unit cash operating costs for the AOSP in the first quarter of 2006 were $26.40 per barrel, an increase of $2.53 per barrel from the preceding quarter and $2.19 per barrel compared with the same period in 2005. The increase was due mainly to increased repair and maintenance costs at the mine, lower volumes associated with the conveyor belt tear and higher energy costs.

The depreciation, depletion and amortization expense in the first quarter of 2006 was lower than the same period in 2005. This decrease was mainly due to preproduction costs, which were fully amortized by the end of 2005.

Both trains at the mine and the upgrader will be down for maintenance during the second quarter of 2006 when the AOSP will conduct its first major planned turnaround. The turnaround is expected to last approximately eight weeks.

Peace River bitumen production for the first quarter of 2006 was similar to the same period in 2005. The Company expects new production to come on-stream late 2006 from two additional well pads that have now completed drilling. Plans to increase Peace River production to 100,000 bbls/d are progressing, with filing of regulatory applications expected later this year.

Oil Products

Oil Products achieved record earnings of $154 million for the first quarter of 2006. Earnings for the same period in 2005 were $123 million. The improvement was mainly due to strong refining and marketing margins partially offset by higher operating expenses and lower refinery utilization. Stronger distillate, gasoline and black oil margins offset weaker benzene and liquid petroleum gas margins. Increased operating costs include project-related expenses for ultra-low-sulphur diesel (ULSD), distribution and commodity price-related costs. Light oil volumes were three per cent lower than in the first quarter of 2005, mainly due to the effects of warm winter weather on demand.

Throughput at the Scotford Refinery was reduced during the conveyor belt tear and replacement at the Muskeg River Mine. Feedstock supplies were partially supplemented from other sources to maintain supply to customers.

Oil Products has arranged to purchase alternative feedstock for the Scotford Refinery to replace supplies that will not be available in the second quarter of 2006 due to planned maintenance at the Scotford Upgrader. A major turnaround will take place at the Sarnia Refinery in the third quarter of 2006.

At the Montreal East and Scotford refineries, construction of new diesel hydrotreater units was completed safely, on time and within budget. The $400 million capital investment at the two sites is now producing ULSD ahead of legislative requirements scheduled to take effect later this year.

Corporate

Corporate earnings for the first quarter of 2006 were nil compared with $60 million for the corresponding period in 2005. The change was due to a $59 million favourable adjustment in the first quarter of 2005 related to the use of non-capital losses available to the Company resulting from the acquisition of an affiliated company, Coral Resources Canada ULC. For the first-quarter of 2006, corporate operating costs were offset by interest and other income.

In March 2006, the Alberta Government announced a corporate tax rate reduction. The estimated one-time beneficial impact on future earnings will be in excess of $50 million, which the Company expects to recognize in the second quarter of 2006.

Cash Flow and Financing

In the first quarter of 2006, cash flow from operations was $722 million, up $85 million from $637 million for the same period last year. These increases are largely attributable to higher prices.

Capital and predevelopment expenditures were $404 million for the first quarter of 2006, compared with $269 million for the same period in 2005. The main investments in the first quarter of 2006 were in support of the Company's growth plans including predevelopment work at the AOSP and Peace River, and drilling activity in the Foothills and BCG businesses.

Corporate debt on the balance sheet remains minimal, consisting of $210 million for the mobile equipment lease. Cash balances did not change significantly from year-end 2005, with high cash flows offset by capital and predevelopment expenditures, higher working capital and dividend payouts. The quarter-end cash balance of $1,069 million has been invested in short-term money market investments.

Dividends paid in the first quarter of 2006 were $0.11 per common share totalling $91 million. This reflected an equivalent dividend per share to that paid in the fourth quarter of 2005, and an increase of 32 per cent over the dividend paid in the first quarter of 2005.

Share Information

At April 15, 2006, the Company had 825,367,662 common shares and 100 preference shares outstanding (January 15, 2006 - 825,107,812 common shares and 100 preference shares) and there were 22,850,139 employee stock options outstanding, of which 11,757,122 were exercisable or could be surrendered to exercise an attached share appreciation right (January 15, 2006 - 20,833,983 outstanding and 9,512,120 exercisable).

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