The UK North Sea is a key producing area. Our assets include a 43.2% operated interest in the Buzzard field and facilities, a 41.9% operated interest in the Scott field and production platform, a 71.8% operated interest in the Telford field, interests in several satellite discoveries and more than 750,000 net undeveloped exploration acres. We are a significant regional player with concentrated assets, infrastructure and exploration potential for future growth. Our North Sea properties have high-margin reserves and production, diversify our global portfolio by adding strong assets in a stable jurisdiction, and complement our other longer cycle-time projects.

Our UK strategy is to grow and sustain our existing North Sea production and identify new production hubs with exploration and exploitation opportunities near existing infrastructure. We have a number of exploitation opportunities in our existing fields and smaller undeveloped discoveries near infrastructure. Most of our unexplored acreage is near Scott/Telford, Buzzard or Ettrick. As a result, new discoveries can be tied-in quickly.

During the year, we produced 102,700 boe/d before royalties (102,700 after royalties) in the UK, which was approximately 41% of our total production. At year end, our UK proved oil and gas reserves of 175 mmboe before royalties (175 after royalties) represented about 18% of our total proved oil and gas and Syncrude reserves before royalties (19% after royalties).

Buzzard

Buzzard is the largest discovery in the UK North Sea in over a decade. It was discovered in 2001 and construction of the platforms and facilities was completed in 2006. Production came on stream early 2007 and the project was completed on time and on budget.

The Buzzard field is located about 60 miles northeast of Aberdeen in the Outer Moray Firth, central North Sea, in 317 feet of water. The Buzzard development includes three platforms that can process at least 200,000 bbls/d of oil and 60 mmcf/d of gas. We have drilled 18 development wells and 14 of them are on stream. Development drilling resulted in more well-to-well variability in the concentration of hydrogen sulphide than originally expected. To address this, we are constructing a fourth platform with production sweetening facilities to handle higher levels of hydrogen sulphide. Existing equipment and processes can manage current hydrogen sulphide levels and maintain current production deliverability until the additional equipment is commissioned, which is scheduled for 2010.

Oil from Buzzard is exported via the Forties pipeline to the Grangemouth refinery in Scotland. Gas is exported via the Frigg system to the St. Fergus Gas Terminal in northeast Scotland.

We expect to produce the Buzzard field through 27 production wells and maintain reservoir pressure with an active water-flood program. During 2008, the Buzzard field reached a milestone when it exported 100 million barrels of crude oil. In 2009, we plan to drill four production wells, two water injectors and progress work on the fourth platform. During the third quarter of 2009, we plan to install the jackets for this platform and complete tie-in operations, pending installation of the topsides. This will result in about one month of downtime which coincides with a six week planned slowdown of the Forties pipeline.

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Scott/Telford

Scott and Telford are producing fields with additional exploitation opportunities and both tie back to the Scott platform. Scott was discovered in 1987 and began producing in September 1993, while Telford was discovered in 1991 and came on stream in 1996. We have a 41.9% working interest in the Scott platform and field, and a 71.8% working interest in Telford. In 2008, our share of production from these fields was approximately 10,500 boe/d. The production is around 90% oil and produced through subsea wells tied back to the Scott platform. Oil is delivered to the Grangemouth refinery in Scotland via the Forties pipeline, while gas is exported via the SAGE pipeline to the St. Fergus Gas Terminal in northeast Scotland. In recent years, the Scott platform underwent a significant maintenance turnaround and facilities upgrade to improve reliability and extend facility life.

Ettrick

We are progressing development of the Ettrick field and first oil is expected in the next few months. The FPSO is currently being commissioned and expected to be on location shortly. Development of the field includes five subsea production wells and three water injectors tied back to a leased FPSO; however, we are developing Ettrick as a new production hub and we expect to tie-in new discoveries. We are reviewing our recent exploration success at Blackbird as a potential tie-back to the Ettrick FPSO. The FPSO is designed to handle 30,000 bbls/d of oil, 35 mmcf/d of gas and to re-inject 55,000 bbls/d of water. We operate Ettrick with an 80% working interest.

Other

We have interests in two smaller non-operated fields in the UK North Sea. The Farragon field was brought on stream in late 2005. In 2007, the Duart field began producing oil from a single well tied back to the Tartan platform. Our share of production in 2008 from these properties was 3,900 boe/d before royalties (3,900 after royalties).

Exploration and Undeveloped Assets

We continue to actively explore in the UK North Sea and hold several undeveloped discoveries on operated blocks near Scott, Buzzard and Ettrick as follows:

In 2007, we discovered hydrocarbons at Golden Eagle, which was further appraised with a sidetrack well. We are currently evaluating development options and expect to sanction development in 2009. In 2008, we drilled two exploration wells in the UK North Sea that found hydrocarbons at Blackbird and Pink. In early 2009, we discovered hydrocarbons at Rochelle and Hobby.

In 2009, we plan to drill four exploration wells and four appraisal wells. We may modify our current 2009 drilling plans depending on various factors, including our partners’ financial situation, the current global economic environment and declining commodity prices.

We are also assessing emerging CBM opportunities onshore in the UK. In 2006, we acquired an 80% working interest in one opportunity and subsequently drilled two successful exploration wells. Both wells encountered coal seams and are being monitored through ongoing production testing.

Fiscal Terms

In the UK, new discoveries pay no royalties and result in cash netbacks that are higher than our company average. Scott is subject to Petroleum Revenue Tax (PRT), although no PRT is payable until available oil allowances have been fully utilized, which isn’t expected before 2010. Once payable, PRT is levied at 50% of cash flow after capital expenditures, operating costs and an oil allowance. PRT is applicable to fields receiving development consent prior to March 1993. Buzzard, Ettrick, Farragon, Duart and Telford are not subject to PRT. PRT is deductible for corporate income tax purposes. The UK corporate income tax rate on oil and gas activities is 30% of taxable income and is also subject to a 20% supplemental charge.