1. MEETING WITH PREMIER HANCOCK MAY 9 TH, 2014 Office of Management and Budget Hazardous Materials: Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains March 2015

2. Who We Are An alliance of oil sands developers dedicated to the responsible development of Canada’s oil sands using in situ technologies 2 Together these members manage a combined 30 billion barrel resource base

3. 3 Importance of Crude by Rail Transport North American refineries have made significant investment in heavy oil processing capacity To meet customer demands reliably IOSA members employ a multimodal transportation strategy with rail transport as an important component Rail provides options to respond quickly to demand and connect new / existing customers that are otherwise unable to access sufficient supplies CAPP forecasts crude by rail volumes to increase 3.5-fold from 200,000 b/d in late 2013 to 700,000 barrels per day in 2016 Western Canada Uploading Capacity vs. Rail Movements Source: 2014 CAPP Crude Oil Market Forecast, Markets & Transportation

4. 4 Commitment to Safety Periodic assessment of infrastructure, equipment, operating protocols and safety response capability provides certainty in the safety of transportation systems We recognize the initiatives already undertaken on both sides of the border by Transport Canada and the US Department of Transportation (DOT) Our transportation objective is to move product from point of origin to destination safely, taking a broad view of the balance of risk along the transportation network. IOSA members have a very strong interest in getting that balance of risk right, consistent with the public interest IOSA members will bear the cost associated with regulatory changes to enhance safety and our interest is to ensure that any investment delivers meaningful improvement in safety outcomes

5. 5 Key Policy Recommendations Any new standard introduced should ensure: 1.Standards and timelines for implementation are harmonized across North America; 2.Continued adherence to the United Nations Product Classification and Labeling system; o Amending the US DOT Emergency Order of February 25, 2014 (amended March 6, 2014) to allow Packing Group III materials to ship as such in containers appropriate to the hazards; 3.Adoption of a new tank car standard based upon CPC 1232 design at 7/16” shell enhanced with a jacket, thermal protection, full head shields and redesigned BOV for transporting crude oil; and 4.Transition timelines for the new standard should match the capacity of the North American manufacturing industry.

6. 6 Harmonization Rail is an integral part of the North American transportation system with nearly 1.4 million tank car shipments of various commodities including over 150 million tons of hazardous materials each year with much of the traffic moving between our countries The rail tank car fleet operates seamlessly between the two countries contributing to an efficient, competitive system for both It is crucial that Canadian and US regulators harmonize standards to ensure this flow of goods remains efficient, safe, and continues to support growth within our economies It is important that harmonization of regulation includes consideration of the timelines for implementation

7. 7 UN Product Classification and Labelling Decades of performance history for this system, including the continuing refinement of these standards incorporating new findings and relevant experience, have delivered a rigorous and reliable system IOSA members support continued use of the existing robust UN system, acknowledging their depth of expertise, supplemented with regional experience, to evaluate any need for changes to the system IOSA recommends recognition of the reduced risk to public safety represented by PG III material by amending the DOT Emergency Order of February 25, 2014 (revised and amended on March 6, 2014) to allow crude oil to be tested, identified and shipped in PG III

8. 8 Processing Facilities for Safer Products Customer requirements for heavy oil in an environment of surplus light crude oil is leading the heavy oil industry to seek methods to ship undiluted bitumen. This can be achieved with rail transportation whereas it is not possible with pipeline transportation In response to this demand, the Canadian heavy oil industry is building facilities to remove diluent components and transporting the resulting non- flammable “Railbit” product exclusively by rail Railbit is a non-flammable crude oil product, similar in composition and nature to asphalt cement used in road asphalt Adhering to the UN classification system and enabling the appropriate tank car to be used for transport would maintain an incentive for shippers to modify their products to reduce hazardous properties

9. 9 Tank Car Standards – Balance of Risk The risk of release from a rail tank car is only one consideration in a comprehensive assessment of rail transportation safety. In contemplation of regulatory changes it is necessary to weigh a broad spectrum of risks that have the potential to impact public safety For a quantity of heavy crude oil shipped by rail, increasing the wall thickness of the rail car shell will add weight to rail cars and correspondingly reduce volume of product carried A shell thickness increase from 7/16” to 9/16” and resulting weight increase is estimated to result in 4-8% more car movements to offset car capacity reduction, or 12,500 additional carloads annually At a rail industry incident rate of 2.3 accidents per million main track miles, 29 additional main track accidents could be expected as a result (including derailments, collisions, and accidental releases)

10. Conditional Probability of Release of Different Car Types Source: Railway Association of Canada, August 29, 2014 Submission to Transport Canada. Based on data from the Railway Supply Institute –Association of American Railroads Tank Car Research and Test Project HHS – Half-height head shield FHS – full-height head shield TFP – top fitting protection 77% decrease Conditional Probability of Release >100 gallons The additional carloads induced by increasing wall thickness will substantially erode any marginal improvement in the probability of release

11. 11 Transition Order backlogs for North American rail tank cars are approximately 53,000 units at Q2 2014, representing 18 months of production The Canadian Association of Railway Suppliers asserts that manufacturing capacity for retrofits is tight across the industry. Manufacturing capacity will be filled for some time to meet the demands of growth with little-to-no capacity remaining to manufacture replacements for retiring tank cars Enforcing a transition timeline that cannot be realistically met has additional far reaching consequences, affecting all commodities that move by rail tank cars Consideration of the hazard potential, as defined by packing group designation, should factor into any transition plan. Packing Group I (high hazard) materials should move into the new rail car standard first, followed by Packing Group II (medium hazard) and then PG III IOSA recommends that the transition plan to the enhanced CPC 1232 tank car standard should be predicated upon the North American tank car manufacturing and retrofitting capacity

12. 12 Summary Substantial safety initiatives have already been undertaken on both sides of the border by Transport Canada and the US Department of Transportation (DOT) IOSA members will bear costs associated with regulatory changes and our interest is to ensure that any investment delivers meaningful improvement in safety outcomes Harmonization between Canada and the US is critical as well as adherence to the proven UN Product Classification and Labelling system Tank car standards should endeavor to find the appropriate balance of risk. Adoption of a CPC 1232 design at 7/16” shell enhanced with a jacket, thermal protection, full head shields and redesigned BOV as the new rail car standard for transporting crude oil is a prudent standard that offers substantial safety improvements The transition to new standards be manageable provided due consideration is given to manufacturing and retrofitting capacity prioritized by packing group