Net earnings were $1,076 million ($2.22/share) in the first quarter of 2008, compared with $590 million ($1.19/share) in the same period of 2007.

"We're off to a good start for the year, with excellent first quarter earnings," said Ron Brenneman, president and chief executive officer. "For the remainder of the year, we remain focused on our 2008 priorities - to deliver production within our guidance range through strong, safe and reliable operations, and to advance growth through our seven major projects."

Earnings Variances

Q1/08 VERSUS Q1/07 FACTOR ANALYSIS

Operating Earnings

(millions of Canadian dollars, after-tax)

Operating earnings increased to $899 million ($1.86/share) in the first quarter of 2008, compared with $580 million ($1.17/share) in the first quarter of 2007. Results reflected the positive impact of higher realized upstream prices ($353 million), increased upstream production(1) ($71 million), lower other expenses(2) ($23 million), and lower DD&A and exploration expenses ($7 million). The results were partially offset by lower Downstream margins(3) ($(87) million) and higher operating, general and administrative (G&A) expenses ($(48) million).

(1) Upstream volumes included the portion of DD&A expense associated with changes in upstream production levels.
(2) Other mainly included interest expense, foreign exchange, changes in effective tax rates and upstream inventory movements.
(3) Downstream margin included the estimated current cost of supply adjustment.

Operating Earnings by Segment

(millions of Canadian dollars, after-tax)

Operating earnings on a segmented basis increased 55% to $899 million in the first quarter of 2008, compared with $580 million in the first quarter of 2007. The increase in first quarter operating earnings reflected higher International ($272 million), East Coast Canada ($88 million), Oil Sands ($67 million), and North American Natural Gas ($24 million) operating earnings. The results were partially offset by lower Downstream operating earnings ($(125) million) and higher Shared Services costs ($(7) million).

Net earnings in the first quarter of 2008 were $1,076 million ($2.22/share), compared with $590 million ($1.19/share) during the same period in 2007. Net earnings in the first quarter of 2008 were higher than in the first quarter of 2007 due to higher operating earnings combined with the benefit associated with settling the Buzzard derivative contracts in the fourth quarter of 2007, partially offset by losses on foreign currency translation of long-term debt and lower gains on asset sales.

During the first quarter of 2008, cash flow from operating activities before changes in non-cash working capital was $1,852 million ($3.83/share), up from $1,166 million ($2.35/share) in the same quarter of 2007. The increase in cash flow from operating activities before changes in non-cash working capital reflected higher operating earnings.

Operating Highlights

First quarter production averaged 427,000 boe/d net to Petro-Canada in 2008, up from 405,000 boe/d net in the same quarter of 2007. Higher volumes reflected increased International production, partially offset by lower East Coast Canada and Oil Sands production and declining production in the North American Natural Gas business.

The Downstream delivered reliable operations and increased higher value retail and lubricants sales volumes in the first quarter of 2008.

BUSINESS STRATEGY

Petro-Canada's strategy is to create shareholder value by delivering long-term, profitable growth and improving the profitability of the base business.

Petro-Canada's capital program supports bringing on seven major projects over the next several years. For the remainder of 2008, the Company expects to complete the project to convert the Edmonton refinery to process lower cost, oil sands-based feedstock and to make final investment decisions (FID) on the Fort Hills mine and upgrader and Montreal coker projects. These projects are expected to add significant earnings and cash flow.

Petro-Canada continually works to strengthen its base business by improving the safety, reliability and efficiency of its operations and is focused on delivering upstream production in line with guidance.

Outlook

Operational Updates

• Commence planned spring turnaround activities in Western Canada
• Terra Nova to commence its planned 16-day maintenance turnaround in mid-June 2008
• MacKay River to begin its planned, major two-week turnaround in early May 2008
• Syncrude 45-day Coker 8-1 planned maintenance turnaround began in April 2008

Major Project Milestones

• Edmonton refinery conversion project construction 79% complete at the end of the first quarter and on track for startup in the fourth quarter of 2008, following an extensive turnaround at the refinery starting in August 2008
• Montreal coker investment decision expected in the second quarter of 2008, subject to resolution of the labor dispute
• North Amethyst portion of the White Rose Extensions received regulatory and government approval to proceed in April 2008
• Syria gas development front-end engineering and design (FEED) completed, FID made, the lump sum engineering, procurement and construction (EPC) contract awarded for the gas processing plant and gathering facilities, and the first well spudded in the first quarter of 2008. Contracts for long-lead items are currently being awarded and detailed engineering work has commenced. First natural gas is expected in 2010.
• Libya - heads of agreement signed for six new Exploration Production Sharing Agreements (EPSA) IV agreements, with final government ratification anticipated in the second quarter of 2008
• MacKay River expansion project received regulatory approval in the first quarter of 2008. The project continues with design refinement and the FID is expected in the first quarter of 2009
• Fort Hills project FEED on track for completion mid-2008, with the upgrader regulatory hearing scheduled to commence in June and FID planned for the fourth quarter of 2008

In the first quarter of 2008, North American Natural Gas contributed $96 million of operating earnings, compared with $72 million in the first quarter of 2007. Higher realized prices and lower exploration expenses were partially offset by lower volumes and higher DD&A expense.

Net earnings in the first quarter of 2008 included a DD&A charge of $24 million after-tax for accumulated project development costs relating to the proposed LNG regasification facility at Gros-Cacouna, Quebec, which has been postponed due to global LNG business conditions. Net earnings in the first quarter of 2007 included a $40 million gain on the sale of the Brazeau and West Pembina assets.

North American Natural Gas production averaged 665 MMcfe/d in the first quarter of 2008, compared with 679 MMcfe/d in the same quarter of 2007. Lower production reflected anticipated natural declines in Western Canada. This was partially offset by higher natural gas production in the U.S. Rockies.

Oil Sands delivered operating earnings of $110 million in the first quarter of 2008, up from $43 million in the first quarter of 2007. Higher realized prices and lower exploration and DD&A expenses were partially offset by lower volumes and higher operating costs. Higher operating costs reflected the cold weather freeze-ups at Syncrude and cleaning of the high temperature separator (HTS) at MacKay River.

Oil Sands production averaged 55,500 b/d in the first quarter of 2008, compared with 59,700 b/d in the first quarter of 2007. Lower Syncrude production reflected slowdowns due to severe winter weather and lower MacKay River volumes were due to preventive maintenance and repairs to process equipment.

In the first quarter of 2008, East Coast Canada contributed $344 million of operating earnings, up from $256 million in the first quarter of 2007. Higher realized prices, increased volumes at Hibernia and lower operating, DD&A and exploration expenses were partially offset by lower production at White Rose and Terra Nova and higher royalty payments.

Net earnings in the first quarter of 2008 included $29 million in insurance proceeds related to Terra Nova.

East Coast Canada production averaged 92,100 b/d in the first quarter of 2008, compared with 97,300 b/d in the same period in 2007. White Rose volumes were lower due to the advancement of the planned maintenance turnaround from the third quarter of 2008 into the first quarter of 2008 and Terra Nova's production was down slightly. Partially offsetting these factors was higher Hibernia production due to the positive impact of well workovers and strong reliability. Hibernia production in the first quarter of 2007 reflected the impact of a maintenance turnaround.

International contributed $336 million of operating earnings in the first quarter of 2008, up from $64 million recorded in the first quarter of 2007. Higher realized prices, increased production volumes and lower operating expenses were partially offset by increased exploration and DD&A expenses. Operating expenses in the first quarter of 2007 included one-time costs for a well workover in the North Sea. Higher exploration expenses were due to partial well write-offs in Trinidad and Tobago and unsuccessful wells drilled in the United Kingdom (U.K.) sector of the North Sea. Increased DD&A expense related primarily to increased production from the North Sea.

Net earnings in the first quarter of 2007 included an unrealized loss on the Buzzard derivative contracts of $60 million and $5 million in insurance proceeds.

International production averaged 168,200 boe/d in the first quarter of 2008, compared with 134,800 boe/d in the first quarter of 2007. Increased production primarily reflected the ramp up of production from Buzzard partially offset by anticipated natural declines in the North Sea.

Exploration Update

In the first quarter of 2008, Petro-Canada and its partners finished operations on seven of the up to 17 wells planned for the year. Two of the wells (Gubik-3 in the Alaska Foothills and Sancoche on Block 22 offshore Trinidad and Tobago) were completed as natural gas discoveries. The Company and its partners will complete further appraisal work before considering development options. Offshore Trinidad and Tobago, the Cassra-2 appraisal well confirmed Contingent resources in the range of 0.6 trillion cubic feet (Tcf) to 1.3 Tcf in the Cassra-1 discovery. Drilling of the Chandler-1 well in the Alaska Foothills has been suspended, as planned, for re-entry next season, the Maria well in the U.K. sector of the North Sea was a non-commercial discovery and two wells (Kwijika in the Northwest Territories and Gemini in the U.K. sector of the North Sea) were dry and abandoned.

DOWNSTREAM

In the first quarter of 2008, the Downstream business contributed $58 million of operating earnings, down from $183 million in the same quarter of 2007, reflecting lower Refining and Supply operating earnings.

Refining and Supply contributed first quarter 2008 operating earnings of $9 million, down significantly compared with $134 million in the same quarter of 2007. Results reflected lower gasoline cracking margins, lower realized refining margins for lubricants, petrochemical and asphalt products, negative foreign exchange impacts on cracking margins and increased operating costs. This was partially offset by improved refinery yields and higher distillate cracking margins. Higher operating costs in the first quarter of 2008, compared with the prior year, included higher planned shutdown and maintenance costs as a result of advancing part of the planned Montreal refinery turnaround into the first quarter of 2008, the addition of environmental costs for the Quebec green levy and one-time items.

Marketing contributed first quarter 2008 operating earnings of $49 million, compared with $49 million in the same quarter of 2007. In the first quarter of 2008, Marketing results reflected higher fuel margins and increased sales volumes offset by higher operating costs.

CORPORATE

Shared Services and Eliminations recorded an operating loss of $45 million in the first quarter of 2008, compared with a loss of $38 million for the same period in 2007.

Petro-Canada is one of Canada's largest oil and gas companies, operating in both the upstream and downstream sectors of the industry in Canada and internationally.