1 Pension Advisory Committee Meeting December 13, 2007 1

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Pension Advisory Committee Meeting

December 13, 2007

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1. BP Canada 2007 Funding Val Results Towers Perrin 1:00

2. Education Session Mercer 1:45 -PR

• Complete Overview session from June 26

• Principles of Investment Management – Part 1

3. Investment Manager Changes Update Herb Kostler 3:15 -PR

• BGI for BlackRock

• Pyramis for New Star

• SSgA Alpha Port Strategy Replacement

4. Saving Plans Review Update 3:45 -PR

• Update and Implementation Timeline Stacey Norman

• Investment Fund Selection Herb Kostler

BP Canada Pension Advisory Committee Meeting Agenda for December 13, 2007

Topic Presenter Time PR=PreRead.

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5. Acceptance of PAC Meeting Minutes Herb Kostler 4:15

• For Sept 6 Meeting - PR

• Pension Task List / Point-Out items - PR

• Review of outstanding action items from previous meeting

6. PAC Investment Portfolio Reviews Herb Kostler 4:30

7. Other Topics for Discussion 4:45

• 2006 BP Canada Cost Measurement Survey Herb Kostler

• Plan Amendments Francine Swanson

BP Canada Pension Advisory Committee Meeting Agenda for December 13, 2007

Topic Presenter Time PR=PreRead.

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BP Canada2007 Funding Valuation Assumptions

• Towers Perrin Presentation Slides

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BP Canada2007 Funding Valuation Options

• Preliminary Funding Valuation results were shared with the Corporate Finance and Pension Investment Group in London.

– The alternatives for filing and contribution options were discussed

• These discussion suggest that:

– The 2007-10-01 Valuation not be filed. This preserves contribution flexibility.

– A contribution holiday be taken based on the 2006-10-01 valuation beginning January 2008.

– Use the 2008-10-01 valuation to determine if our funding position has changed and if a contribution is appropriate during the fourth quarter of 2008.

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Mercer Educational Session

• Complete Overview session from June 26

• Principles of Investment Management – Part 1

–

7

Investment Manager Changes - Update

Approved Executive memorandum for entering into an IMA with BGI and Pyramis was sent our as pre read

BGI IMA is being review by BP Legal. Pyramis IMA is being review by BP Legal. SSgA situation was outlined to PAC member in the email note dated

November 16, 2007 Majority of SSgA funds have been liquidated and moved into short term

cash. The fixed income beta exposure via futures contracts and swaps remains in place.

Awaiting to begin discussion with Trust Investment Group on investment options and manager search. Some examples of investment options and managers that provide them include:

Traditional FI – Fiera Core Plus FI – Pimco Portable Alpha – TD Asset Management Absolute Return Bond Fund – ABN Amro Global FI – T. Rowe Price Index Fund – TD Asset Management

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BP Canada

Savings Plan provider change

PAC meeting

December 13, 2007

Objective: update PAC on project status and timing

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Savings Plans – service provider

RFP for consulting services sent - June 18 Three responses: Mercer, Towers Perrin, Watson Wyatt

Watson Wyatt was selected, Executive Memo signed July 25

Learnings - RFP process: Brokerage-type arrangements for savings plans expose

plan sponsors to potential legal liabilities under CAP guidelines

All consultants advised that when establishing new plans or reviewing current ones over the past few years, all resulted in the selection of insurance companies as plan administrators

The review then became a project to transition services from Scotia McLeod to a new service provider

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Savings Plan provider change

New provider chosen in September Obtained PAC & CLT endorsement, President approval

Project kick-off meeting with Sun Life: September 20 Project plan

Communications strategy & timing of employee sessions

Investment structure defined

Transition plan from Scotia McLeod

Request from Randy & Dave to delay effective date January 1, 2008 changed to June 1, 2008

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Savings Plan – actions & timeline

September – December, 2007 HR project team working to finalize project details, timeline

and communications with Sun Life; work through transition plan with Scotia McLeod

March, 2008 Employee communications begin mid-March

April, 2008 Employee information sessions & enrolment

June 1, 2008 Effective date for new contributions to Sun Life (first data

feed is June 15)

TBD: effective date for transferred accounts from Scotia McLeod to Sun Life (~ 60-90 days post June 1)

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Savings plan–benefits/cost savings

• Benefits to employees– Better service – access to 1-

800 call centre for plan details and investment information; state of the art website with modeling tools, retirement planning information, ability to change asset mix & investments on-line, easy to read statements

– Lower Investment Manager Fees (IMFs) under insurance platform (Scotia charges full retail of 2-2.5% vs. 0.9% or less with Sun)

– Single access point and sign-on for group benefits including health, dental, life, savings

– More secure savings plan with strong governance support in place

• Benefits to BP– Savings of $80,000 per year

administration fee to Scotia McLeod

– Better service – access to better reporting, investment fund performance, vendor performance management

– Able to fulfill responsibilities under CAP guidelines, including manager monitoring, provision of information & education, etc.

– Able to expand offerings in future, if desired - e.g. RRSP season, financial planning workshops, pre-retirement workshops, etc.

– Integrate & streamline benefits communications, enhance employee understanding of program value

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Proposed Investment StructureSeptember 27, 2007

Asset ClassPassive (Index)

Active

TotalValue Growth Core

GICs N/A

Money Market 1(2) 1

Fixed Income** 1 1

Canadian Equity 1 1 2

Canadian Equity – Small Cap 1 1

US Equity 1 1

International Equity 1 1

Global Equity 1 1

Balanced N/A

Target Risk Portfolios N/A

Target Retirement Date Portfolios 1(1) 1 2

Other – BP Stock Yes(3)

TOTAL 11

(1) Default investment option for Group RRSP and DPSP

(2) Default investment option for Savings Plan – employee contributions

(3) BP stock is only available as an investment option under the Savings Plan; employer contributions for the Savings Plan are directed to BP stock, however, the employee may move these contributions to any other investment option at any time

** Global fixed income may be offered in addition to the core fixed income fund, if available on the provider’s platform

Funds not in final offering to employees

(This data is an extract from Watson Wyatt Reports)

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Asset Class Mandate Fund Selected Comments / Reasons for Final Selection

Money Market (2) Core Sun Life Money Market

Sun Life only offers one money market fund. It is subadvised by Connor, Clark and Lunn.

Fixed Income Passive TDAM Index Sun Life offers two passive fixed income funds: BGI and TDAM. The two funds are very similar and have a similar track record. TDAM was chosen since it is a Canadian company and the name would likely be more recognized by plan members.

Global N/A Sun Life does not offer a global fixed income product at this time. To add a global fixed income option, an off-platform manager search would need to be conducted. However, the cost (Sun Life fee of $10,000 per annum) and requirements (minimum investment balance of $3 million) for off-platform managers with Sun Life makes this option not viable.

Canadian Equity Passive TDAM Index Sun Life offers two passive Canadian equity funds: BGI and TDAM. The two funds are very similar and have a similar track record. TDAM was chosen since it is a Canadian company and the name would likely be more recognized by plan members.

Core PH&N (GARP) Other than McLean Budden, there were no strong core options offered by Sun Life. Therefore, GARP (“growth at a reasonable price”) options were considered since GARP combines aspects of both value and growth investment styles and, as such, is quite similar to core. PH&N was considered to be the most suitable option based on the analysis in this report and since it is currently offered to members in both the DC Pension Plan through Great-West Life as well as the group RRSP/DPSP through Scotia McLeod.

Canadian Equity – Small Cap

Core N/A Sun Life does not offer any strong Canadian equity small cap options and, therefore, it was decided not to offer a small cap option at this time.

BP Canada Group RRSP/DPSP/Savings PlanFund Line-Up as of October 31, 2007


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US Equity Passive Group RRSP/DPSP: BGI Index (registered)

Savings Plan: BGI Index (non-registered)

Sun Life offers two passive US equity funds: BGI and TDAM. The two funds are very similar and have a similar track record. However, only BGI offers these funds on both a registered and non-registered basis. The registered option (suitable for tax-sheltered plans such as the group RRSP and DPSP) is not subject to withholding tax. TDAM does not offer a registered version. Since the withholding tax will result in a drag on performance, it was decided that BGI would be the best option. In addition, it was agreed that it would be prudent to have another index manager in the fund line-up so as not to have too much exposure to TDAM.

International Equity

Core TDAM Index Since Sun Life does not offer any strong core options at this time, it was agreed that Pyramis (Fidelity) would be used as an off-platform option since Pyramis was recently chosen as a manager for international equities for the BP defined benefit pension plan. However, in discussions with Sun Life, Sun Life indicated that there would be a fee of $10,000 per annum to add an off-platform option and that BP would need to guarantee a minimum of $3 million be invested in the fund at all times. Since Sun Life was not willing to waive these requirements, it was decided that a passive international option would be added at this time; BP will continue to pursue the Fidelity option with Sun Life.

Global Equity Core Trimark (value) Since Sun Life does not offer any strong core options at this time, value options were considered. It was decided that Trimark would be the most suitable option given its very strong track record, strong brand name recognition and the fact that it is currently offered to members in the DC Pension Plan through Great-West Life.



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Target Retirement Date (“TRD”) Portfolios (1)

Passive BGI LifePath Funds Sun Life offers two passively managed TRD products: BGI and ABN AMRO. Although the ABN AMRO product offers a guarantee feature, this product invests in derivatives (using futures, options and strip bonds) and uses leverage. It was agreed that this would pose a communications challenge for plan members and that the BGI product would be more appropriate.

Core N/A Sun Life offers only one actively managed TRD product. This product is managed by McLean Budden. It was decided that, since all asset classes are managed by one investment manager, this product is subject to single manager risk. Therefore, it was agreed that an actively managed TRD product would not be added at this time but may be added in the future should Sun Life add other products to its platform (i.e., a multi-manager product).

Other BP stock (3) BP stock will be administered by Sun Life using Sun Life’s Group Direct Held option. (An alternative option through State Street was researched to see if the BP Stock Fund that State Street runs for the BP US plan could be leveraged for Canada. State Street indicated that it would take some time to work through the legalities of offering this fund in Canada. Given the tight timeline for this project, it was decided that this is not currently a viable option but may be given consideration in the future.)

(1) Default investment option for contributions directed to REGISTERED accounts

(2) Default investment option for contributions directed to NON-REGISTERED accounts

(3) BP stock is only available as an investment option under the EMPLOYER’S contributions to the Savings Plan. Methods for employee investing in BP stock are still under consideration.



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Asset Class Fund Estimated

Fees (bps) (4)

GWL Fees (bps)

Money Market (1) Sun Life Money Market 31 40

Fixed Income TDAM Index 29 n/a (88 active)

Canadian Equity TDAM Index

PH&N

29

66

n/a

88

US Equity Group RRSP/DPSP: BGI Index (registered)

Savings Plan: BGI Index (non-registered)

29

29

n/a

n/a

International Equity TDAM Index 29 n/a

Global Equity Trimark 96 115

Target Retirement Date (“TRD”) Portfolios (2)

BGI LifePath Funds (Index based) 51 to 66 n/a (88 Balanced)

Other BP stock (3) 5 n/a

(1) Default investment option for contributions directed to NON-REGISTERED accounts

(2) Default investment option for contributions directed to REGISTERED accounts – fees vary depending on years to maturity

(3) BP stock is only available as an investment option under the EMPLOYER’S contributions to the Savings Plan.

(4) Fees are composed of:a) Investment Manager Feeb) Sun Life Basic Admin Fee – 12 bpsc) Sun Life Operating Expense Charge – 3 to 5 bps (4 bps assumed above)

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Future Meeting Dates

• Scheduled dates

– 2008-2-13 (Revised Notice Sent)

– 2008-5-15 (Meeting Notice Sent)

– 2008-9-04 (Proposed)

– 2008-12-11 (Proposed)

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Outstanding Action Items As of Last Meeting 2007-9-6

1. Prepare a BP Canada Funding Valuation Report as of 2007/10/1. (2007/9/6 – Towers Perrin / Herb)

2. Trust Investments to provide Francine with Fund subscription documents (2007/9/6 – Greg)

3. Trust Investments to prepare a summary of the New Manager transition plan to PAC (2007/9/6 – Greg)

4. Prepare an Executive Memorandum for BP Canada’s Approval new BGI and Pyramis IMAs (2007/9/6 – Herb)

5. Continue close monitoring of SSgA strategies and performance and advise PAC (2007/9/6 – Herb / Greg)

6. Prepare an action plan and update PAC wrt implementation of CAPSA Governance Guidelines (2004/12/13 – Herb)

7. Prepare Castrol Plan SIPP (2005/12/15 – Herb)

8. Send out RFP to Asset Consultants for an Asset Liability Study in 2007 (2007/2/22 – Herb)

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DB Plan Performance – As of 010/31/07

• Highlights

– 2007-10 YTD Pension Fund total asset return is 3.41% vs the portfolio benchmark of 4.27%.

– SSgA Portable Alpha Strategy has significantly under performed it benchmark by 6.6% YTD, reducing total return by 0.9%

– Rebalanced $20 M from Canadian Equities into Fiera Fixed Income

• $10 M from KBSH on Oct 22nd

• $10 M from NTGA on Nov 1st

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DB Plan PerformanceYTD as of 10/31/2007

Asset Manager% of Fund Asset Class

Actual Return

Bench-mark Comparative Indices

KBSH 18.3% Cdn Equities 15.21% 15.57% S&P/TSX Composite

Northern Trust 19.9% Cdn Equities 14.91% 15.57% S&P/TSX Composite

BlackRock 15.8% US Equity Derivative -9.79% -9.51% S&P 500

State Street 5.8% EAFE Equities -4.87% -4.02% MSCI EAFE (Cdn$)

New Star 6.0% EAFE Equities -1.65% -4.02% MSCI EAFE (Cdn$)

Morgan Stanley 3.1% Emerging Markets 27.63% 23.29% MSCI EM Free

Franklin Templeton 2.9% Emerging Markets 16.78% 23.29% MSCI EM Free

Fiera 14.3% Fixed Income 1.03% 0.47% SM Universe / Long

SSgA Port Alpha 14.1% Fixed Income -6.12% 0.47% SM Universe / Long

Total Fund 100.0% 3.41% 4.27%

Total Fund Value $ 530.9

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DB SIPP Monitoring – As of 09/30/2007Quarterly Over / Under Benchmark Performance

Over / Under Benchmark Performance:

> than 1% negative performance for active and 0.2% for passive highlighted as

< than 1% negative performance for active and 0.2% for passive highlighted as

Target Alpha

2 Yr Annualz

2005Q4

2006 Q1

2006 Q2

2006 Q3

2006 Q4

2007 Q1

2007 Q2

2007 Q3

KBSH 1.90% -0.67% 1.02% -0.05% 1.39% -0.48% -2.16% -1.05% -0.16% 0.10%

NTGA 1.00% 0.60% -0.39% -0.73% -0.34% 2.66% 0.18% 0.00% -0.23% -0.02%

BlackRock (Passive) 0.00% -0.24% 0.12% -0.31% -0.05% -0.05% 0.02% -0.12% 0.03% -0.10%

SSGA 3.00% 0.59% 0.66% 0.42% -0.07% -0.61% 1.17% 0.11% 0.23% -0.62%

New Star 2.00% -1.80% -1.90% -0.92% -0.53% 0.00% -2.61% 0.44% 1.55% 0.31%

Morgan Stanley 2.00% 3.06% -0.59% 2.36% -0.17% 1.28% 2.77% 0.33% -1.01% 0.55%

Franklin Templeton 2.00% -4.24% -0.14% -0.74% 0.16% -0.14% -0.85% -0.74% -2.10% -2.70%

Fiera 1.00% 0.76% 0.33% -0.29% -0.33% 1.12% 0.40% -0.24% 0.11% 0.19%

SSGA - Port Alpha 5.00% 0.20% -0.48% 0.84% -6.39%

Total Plan -0.38% 0.17% -0.16% -0.13% 0.70% -0.15% -0.30% 0.11% -0.91%

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DB - BP Canada Pension Master Trust As of 10/31/2007

BP Canada Pension Master TrustAsset Mix Components

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Dec

-04

Mar-

05

Jun-0

5

Sep

-05

Dec

-05

Mar-

06

Jun-0

6

Sep

-06

Dec

-06

Mar-

07

Jun-0

7

Sep

-07

Oct

-07

Canadian Equity U.S. Equity Intl. Equity Fixed Income Cash

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DB Asset Balances as of 07/31/2007

0

100

200

300

400

500

2000 2001 2002 2003 2004 2005 2006 2007YTD

Assets Contributions

342.1

403.7

297.2

378.0

488.4449.6

534.0 530.9

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DC Plan Performance – As of 10/31/2007

Total BP and Castrol DC Plan assets = $21.1 M

ANNUALIZED RATES OF RETURN

OCTOBER 31, 2007

One Year Performance Four Year Performance

DC PLAN FUNDSMgr

ReturnBench mark

Value Added

Mgr Return

Bench mark

Value Added

PH&N - Balanced Pension Trust Fd 6.11% 8.34% -2.23% 9.67% 10.68% -1.00% PH&N - Canadian Equity Plus Fund 16.72% 21.68% -4.97% 16.13% 17.89% -1.76%

PH&N - Bond Fund 1.76% 1.84% -0.08% 5.56% 5.30% 0.26%

BISSETT - Canadian Equity Plus Fd 15.54% 16.74% -1.21% 17.56% 16.77% 0.80%

TRIMARK - Global Equity 2.95% 2.06% 0.89% #NUM! 7.77% #NUM!

Money Market Fund 4.40% 2.42% 1.98% 3.26% 2.76% 0.50%

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DC Verses DB Asset Mix -As of 09/30/07

9.00%

44.20%23.60%

23.20%

CDN Equities Foreign Equities Fixed Income Cash

1.80%26.80%

37.40%

34.00%

DC Asset Mix DB Asset Mix

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Castrol Investments Review As of 09/30/07

1 Year 4 Year Annualized

Asset Class Value % FundBench mark

Value Add Fund

Bench mark

Value Add

Canadian Equities 8,589.6 34.7% 25.03% 22.81% 2.22%

21.14% 19.83% 1.31%

US Equities 3,551.2 14.3% 5.67% 4.02% 1.65% 4.49% 5.02% -0.53%

International Equities

2,275.0 9.2% 15.67% 12.00% 3.67%

14.95% 14.40% 0.55%

Total Equities 14,415.8 58.2%

Real Estate 1,029.2 4.2% 14.17% 20.10% -5.93%

13.74% 18.60% -4.86%

Bonds 9,341.4 37.7% 1.56% 1.62% -0.06% 4.69% 4.85% -0.16%

Mortgage - 0.0% 0.00% 0.00%

Total Fixed Income

10,370.6 41.8%

Total Assets 24,786.4 100.0% 11.78% 11.41% 0.37%

11.90% 11.65% 0.25%

BP Canada Portfolio - Total Returns 10.52% 11.90% -1.38%

12.25% 12.49% -0.24%

2003 2004 2005 20062007 YTD

Total Asset Value 18,201.8 18,727.

5 21,434.

1 24,251.

0 24,786.

4

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• Participated in the CEM Benchmarking Inc. Survey for the first time– Survey covered 97 Canadian Pension funds representing 70% of DB assets in

Canada (51 were corporate plans)

– Several statistics are of relevance from a Governance perspective

• Operating Costs:

• Going Concern Valuation Assumption for 2006– BP Fund used 6.5% vs median of 6.3% (range is 6.8% at Q3 and 5.7% at Q1)

• Additional charges will be made to the plan starting in 2007 for BP internal costs chargeable to the plan (estimated cost of 4 bps)

* Incentive based: BGI @ 150 bps target alpha / Pyramis @ 200 bps targeted alpha

2006 BP Canada Pension PlanCost Effectiveness Measurement Survey

BP Canada Benchmark

Variance

BP Fund Total Cost 44 bps 39 bps + 5 bpsBP Fund IMA Fees 32 bps 29 bps + 3 bpsBP Fund Other Costs 12 bps 10 bps + 2 bpsActuarial Fees (bps as % of Assets)

3.1 bps 3.6 bps - 0.5 bps

US IMA Costs–Passive (BlackRock)

15 bps 6 bps + 9 bps

US IMA Costs–Active (BGI * ) 38 bps 44 bps - 6 bpsEAFE IMA Costs-Active (New Star)


EAFE IMA Costs-Active (Pyramis *)


Mandates to be Transitioned

Documents

1 Pension Advisory Committee Meeting December 13, 2007 1