Canadian Oil Sands Limited
TSX : COS

Canadian Oil Sands Limited

April 28, 2011 16:00 ET

Canadian Oil Sands Announces 2011 First Quarter Results and Capital Cost Estimates for Major Projects

CALGARY, ALBERTA--(Marketwire - April 28, 2011) -

All financial figures are unaudited and in Canadian dollars unless otherwise noted.

Canadian Oil Sands Limited ("Canadian Oil Sands", "COS" or "we") (TSX:COS) today announced first quarter 2011 results. Cash flow from operations in the first quarter of 2011 more than doubled to $478 million ($0.99 per Share) compared with $225 million ($0.46 per Share) in the first quarter of 2010. Net income for the first quarter of 2011 rose to $324 million ($0.67 per Share) compared with $176 million ($0.36 per Share) in the first quarter of 2010. The improvement in financial results reflects an increase in production and higher crude oil prices.

COS today declared a dividend of $0.30 per Share payable on May 31, 2011 to shareholders of record on May 26, 2011. COS has a variable dividend strategy; dividend amounts will vary over time depending largely on crude oil prices and the investment cycle of Syncrude's capital projects.

"Stronger crude oil prices combined with better clarity on future Syncrude capital requirements have led us to increase the dividend to $0.30 per Share for the second quarter of 2011," said Marcel Coutu, President and Chief Executive Officer. "We also are encouraged by the recent strong operational performance at Syncrude, with first quarter 2011 production being the best first quarter on record."

Sales volumes during the first quarter of 2011 averaged 121,000 barrels per day compared with 99,000 barrels per day for the first quarter of 2010. Operations reflect improved capacity utilization in the first quarter of 2011 compared with the first quarter of 2010, which was impacted by the turnaround of the LC Finer and associated upgrading units.

Higher sales volumes resulted in lower per barrel operating expenses for the first quarter of 2011, which averaged $35.53 per barrel compared with $37.89 per barrel in the 2010 first quarter.

Syncrude's total recordable injury rate for the first quarter of 2011 was 1.22 compared with a rate of 0.39 for the same period of 2010. Syncrude recently adopted ExxonMobil's Incident and Injury Reporting Guidelines that capture more types of events, therefore the rates for 2010 and 2011 are not directly comparable.

"This quarter, we are following through with our undertaking to provide investors with a multi-year capital cost profile for our mine train replacements and relocations and other large projects. Although the estimates are still variable because the detailed engineering has not been completed, we are confident at this point that we can fund these projects from our cash flow without any significant equity dilution," said Coutu.

Highlights                                                                  
                                                   Three Months Ended       
                                                        March 31            
(millions of Canadian dollars, except per                                   
 Share and per barrel volume amounts)                   2011           2010 
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Cash flow from operations (1)                      $     478      $     225 
 Per Share (2)                                     $    0.99      $    0.46 
Net Income                                         $     324      $     176 
 Per Share, Basic and Diluted                      $    0.67      $    0.36 
Sales Volumes (3)                                                           
 Total (MMbbls)                                         10.9            8.9 
 Daily average (bbls)                                120,894         99,286 
Realized SCO Selling Price ($/bbl)                 $   93.04      $   82.06 
West Texas Intermediate (average $US/bbl) (4)      $   94.60      $   78.88 
Operating Expenses ($/bbl)                         $   35.53      $   37.89 
Capital Expenditures                               $     109      $     112 
Dividends                                          $      97      $     170 
 Per Share                                         $    0.20      $    0.35 
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(1) Cash flow from operations is a non-GAAP measure and is defined on page 9
     of the Management's Discussion and Analysis                            
    ("MD&A") section of this report.                                        
(2) Cash flow from operations per Share is a non-GAAP measure and is defined
     on page 9 of the MD&A section of this report.                          
(3) The Corporation's sales volumes differ from its production volumes due  
     to changes in inventory, w hich are primarily in-transit pipeline      
     volumes. Sales volumes are net of purchased crude oil volumes.         
(4) Pricing obtained from Bloomberg.                                        

Syncrude Major Capital Projects

Syncrude is investing in a number of major capital projects in 2011 through 2014 to support strong, stable, long-life production while achieving operational efficiencies and improving environmental performance.

The early cost estimates for these projects, with the exception of the Syncrude Emissions Reduction project, are variable (plus or minus 25 per cent), which is appropriate for the current stage of definition. Under the Management Services Agreement between Syncrude Canada and Imperial Oil, Imperial Oil provides Syncrude Canada with project management expertise, utilizing ExxonMobil's global best practices and processes. We believe having Imperial Oil assist Syncrude in managing these projects provides the potential for better project execution and cost management. Imperial Oil is a Syncrude joint venture owner with a vested interest in the project's success, and through ExxonMobil, their parent company, they are recognized as a global leader in managing major projects.

Syncrude Emissions Reduction (SER) project

The SER project is an environmental project that represents a significant commitment to reduce Syncrude's impact on the local air shed. It is designed to contribute to a 60 per cent reduction in sulphur compound emissions from current approved levels once the project is fully operational. Emissions of particulate matter also are expected to decline considerably. Construction of this project commenced in 2006 and is scheduled to be in service in 2011. Once operational, all of Syncrude's cokers will be equipped with technology to capture emissions of sulphur dioxide and particulates.

Mine Train projects

Syncrude operates five mine trains on its active leases, four of which will be relocated or rebuilt over the next few years. Like all surface mining operations, this activity is necessary to support Syncrude's mine plan for the placement of tailings material and eventual reclamation. Plans are in place to coordinate these efforts such that production should not be affected.

A mine train is a modular process for crushing and mixing the oil sands with warm water to facilitate the extraction of bitumen from the oil sands. It includes three components: a crusher, which breaks down the bitumen ore after it has been mined; a surge bin that regulates the oil sands' feed into the process; and a mix box in which warm water is added to the oil sands to form a slurry suitable for pumping. The resulting slurry is then pumped to extraction via a hydrotransport pipeline, a Syncrude technology that conditions the oil sands for separation.

At Syncrude's Mildred Lake mine site, the two existing mine trains will be dismantled and new mine trains will be constructed at a new location. The construction of these mine trains will incorporate Syncrude's new wet crushing technology, which is expected to improve bitumen recovery and lower maintenance requirements.

At the Aurora North mine site, there are three mine trains. These mine trains were designed to be moveable and two will be relocated; the third train will not need to be relocated. This is a much less capital intensive process than the new mine train construction required at Mildred Lake where the older, more permanent design does not allow a similar equipment move.

Basic engineering has been completed for these projects and civil works has commenced. Once the relocations and rebuilds have been completed, the mine trains are expected to be in operation in their new locations until the Mildred Lake and Aurora North mines are fully depleted with no further moves required.

Aurora North Tailings Management

Syncrude expects to begin site preparation for a composite tails (CT) plant at its Aurora North mine in 2011 as part of the original plan for this mine. Construction is scheduled to start in 2012 with an anticipated in-service date of 2013. A CT plant currently operates at the Mildred Lake mine. A CT plant mixes mature fine tailings (MFT) with gypsum and coarse tailings sand to transform the MFT into solid reclamation material. The CT plant at the Aurora North mine is expected to process more than half of the MFT produced at that site.

Syncrude has a multi-pronged approach to managing its tailings and meeting the requirements of the Alberta government's Tailings Directive 074. In addition to CT, other tailings management infrastructure is required by 2015 but cost estimates for this infrastructure are not yet available.

Syncrude and its industry counterparts have the opportunity to share each others' tailings technologies through a technology sharing agreement announced in December 2010.

The following tables provide cost and schedule estimates for Syncrude's major capital projects that have reached a certain stage of definition. In particular, they do not provide cost estimates for Aurora South development, other tailings management infrastructure or maintenance of business post 2011:

Major Capital Projects(1)
Total Project Cost and Schedule Estimates(2)
                              Spent to   Total Cost                  Target 
                          Dec 31, 2010     Estimate  Estimated % In-Service 
Project                    ($ millions) ($ billions)    Accuracy       Date 
----------------------------------------------------------------------------
Syncrude                                                                    
 Emissions                                                                  
 Reduction (SER)  Syncrude  $    1,108   $      1.6     +10%/-10%   Q4 2011 
Retrofit         COS share         407          0.6                         
 technology into                                                            
 Syncrude's                              
 original two                                                               
 cokers to                                                                 
 reduce total                                                               
 sulphur dioxide                                                            
 and other                                                                  
 emissions                                                                  
Mildred Lake                                                                
 Mine Train                                                                 
 Replacement      Syncrude         166          3.6     +25%/-25%   Q4 2014 
Reconstruct      COS share          61          1.3                         
 crushers, surge                                                            
 facilities,     
 and slurry prep                                                            
 facilities to                                                              
 support                                                                    
 tailings storage                                                           
 requirements                                                               
Aurora North                                                                
 Mine Train                                                                 
 Relocation       Syncrude          51          0.9     +25%/-25%   Q1 2014 
Relocate         COS share          19          0.3                         
 crushers, surge                                                            
 facilities,     
 and slurry prep                                                            
 facilities to                                                              
 support                                                                    
 tailings storage                                                           
 requirements                                                               
Aurora North                                                                
 Tailings                                                                   
 Management       Syncrude          59          0.8     +25%/-25%   Q4 2013 
Construct        COS share          22          0.3                         
 composite tails                                                            
 (CT) plant      
 at the Aurora                                                              
 North mine                                                                 
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Total             Syncrude  $    1,384   $      6.9                         
                 COS share         509          2.5                         
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Major Capital Projects(1)                                                   
Annual Spending Profile(2)                                                  
                                            Cost Estimate                   
                 Spent to --------------------------------------------------
                   Dec 31,                                                  
                     2010      2011      2012      2013      2014     Total 
                       ($        ($        ($        ($        ($        ($ 
                 millions) millions) billions) billions) billions) billions)
----------------------------------------------------------------------------
Syncrude                                                                    
Major capital                                                               
 projects         $ 1,384   $ 1,672   $   1.9   $   1.7   $   0.3   $   6.9 
Regular                                                                     
 maintenance of                                                             
 the business                                                               
 and other                                                                  
 projects                       831                                         
                          ----------                                        
Total capital                                                               
 expenditures               $ 2,503                                         
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Canadian Oil                                                                
 Sands share                                                                
Major capital                                                               
 projects         $   509   $   614   $   0.7   $   0.6   $   0.1   $   2.5 
Regular                                                                     
 maintenance of                                                             
 the business                                                               
 and other                                                                  
 projects                       305                                         
                          ----------                                        
Total direct                                                                
 capital                                                                    
 expenditures                   919                                         
Capitalized                                                                 
 interest                        60                                         
                          ----------                                        
Total capital                                                               
 expenditures               $   979                                         
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(1) Major capital projects include the Syncrude Emissions Reduction (SER),
    Mildred Lake Mine Train Replacement, Aurora North Mine Train Relocation
    and Aurora North Tailings Management.  Major Capital Projects do not
    include projects that have not reached sufficient design definition,
    such as Aurora South and other tailings management infrastructure.
(2) Total project costs include both capital costs and certain
    non-production costs.  Costs exclude capitalized interest.

Canadian Oil Sands plans to finance these major capital projects primarily through cash flow from operations.

Beyond 2014, Syncrude's capital program includes development of a group of undeveloped leases called Aurora South aimed at expanding bitumen production by approximately 50 per cent before 2020. Syncrude is in the process of developing cost estimates for this expansion, which expansion must also be approved by the Syncrude joint venture owners.

The major capital projects descriptions and tables and the expectations regarding the development of Aurora South contain forward-looking information and users of this information are cautioned that the actual yearly and total capital expenditures, the actual in-service dates for the major capital projects and the actual level and timing of bitumen production growth expected from the development of Aurora South may vary from the plans disclosed. The capital expenditure cost estimates, major capital project target in-service dates and expectations regarding the development of Aurora South are based on current capital spending plans. Please refer to the "Forward-Looking Information Advisory" in the MD&A section of this report for the risks and assumptions underlying this forward-looking information. For a list of additional risk factors that could cause the actual amount of the capital expenditures and the major capital project target in-service dates and the level and timing of bitumen production growth expected from the development of Aurora South to differ materially, please refer to the Corporation's Annual Information Form dated March 10, 2011 which is available on the Corporation's profile on SEDAR at www.sedar.com and on the Corporation's website at www.cdnoilsands.com.

2011 Outlook

The outlook for production remains unchanged from the guidance provided on January 27, 2011. Canadian Oil Sands estimates 2011 Syncrude production of 110 million barrels (40.4 million barrels, net to COS), with a production range of 102 to 115 million barrels. This is equivalent to 301,400 barrels per day (110,700 barrels per day net to COS). The 110 million barrel single-point estimate includes one planned coker turnaround in the second half of the year.

Other estimates have been revised from the January guidance. The estimate for operating costs increased to $37.51 per barrel. Capital expenditures are now estimated at $979 million, including $614 million for major capital projects, $305 million for regular maintenance of the business and other projects, and $60 million in capitalized interest. In accordance with IFRS, a portion of interest costs are capitalized with an offsetting reduction to interest expense. Excluding capitalized interest, the forecast is largely unchanged.

The April 28, 2011 Outlook assumes an increased U.S. $95 per barrel WTI oil price, an SCO premium to Cdn dollar WTI of $4.00 per barrel, and a stronger U.S./Cdn foreign exchange rate of $1.03. These assumptions result in estimated sales of $3,890 million, or $96 per barrel in 2011.

The increase in our forecasted SCO premium to Cdn dollar WTI reflects recent operational upsets and maintenance at several oil sands plants, which have reduced SCO supply and resulted in significant premiums relative to WTI. These supply disruptions are expected to be resolved over the course of the year, which will likely result in SCO premiums decreasing in the second half of 2011.

We are estimating cash flow from operations of approximately $1.9 billion, or $3.95 per Share, in 2011. After deducting forecast 2011 capital expenditures, we estimate $936 million in remaining cash flow from operations for the year, or $1.93 per Share.

More information on COS' outlook is provided in the MD&A section of this report and the April 28, 2011 guidance document, which is available on our web site at www.cdnoilsands.com under "Investor Information".

The 2011 Outlook contains forward-looking information and users are cautioned that the actual amounts may vary from the estimates disclosed. Please refer to the "Forward-Looking Information Advisory" in the MD&A section of this report for the risks and assumptions underlying this forward-looking information.

Corporate Governance

Effective April 28, 2011, Wayne Newhouse will retire from Canadian Oil Sands' board of directors. Mr. Newhouse is one of the original board members, and his commitment over our long history is deeply appreciated. In particular, the board and management will miss his valuable contribution as chair of the Reserves Committee.

Another member of COS' board, Ian Bourne, deserves special recognition for receiving a fellowship award from the Institute of Corporate Directors. This award is the highest distinction for corporate directors in Canada and recognizes Mr. Bourne for his outstanding contributions to corporate governance.

Annual General Meeting

Canadian Oil Sands' Annual General Meeting of Shareholders will be held today, April 28, 2011 at 2:30 p.m. (Mountain Daylight Time) in the Ballroom of The Metropolitan Conference Centre, 333 Fourth Avenue SW, Calgary, Alberta. A live audio webcast of the meeting will be available on our website at www.cdnoilsands.com. An archive of the webcast will be available approximately one hour following the meeting.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") was prepared as of April 28, 2011 and should be read in conjunction with the unaudited interim consolidated financial statements of Canadian Oil Sands Limited (the "Corporation") for the three months ended March 31, 2011 and March 31, 2010, the audited consolidated financial statements and MD&A of the Corporation for the year ended December 31, 2010 and the Corporation's Annual Information Form ("AIF") dated March 10, 2011. Additional information on the Corporation, including its AIF, is available on SEDAR at www.sedar.com or on the Corporation's website at www.cdnoilsands.com. References to Canadian Oil Sands or COS include the Corporation, its subsidiaries and partnership and, as applicable, Canadian Oil Sands Trust (the "Trust") prior to its dissolution. The financial results of Canadian Oil Sands have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and are reported in Canadian dollars, unless stated otherwise.

As a result of our conversion from an income trust to a corporate structure on December 31, 2010 pursuant to which all outstanding trust units of the Trust were exchanged on a one-for-one basis for common shares of the Corporation, the financial information of Canadian Oil Sands refers to common shares or shares ("Shares"), shareholders and dividends which were referred to as Units, Unitholders and distributions under the trust structure.

FORWARD-LOOKING INFORMATION ADVISORY- in the interest of providing the Corporation's shareholders and potential investors with information regarding the Corporation, including management's assessment of the Corporation's future production and cost estimates, plans and operations, certain statements throughout this MD&A and the related press release contain "forward-looking statements" under applicable securities law. Forward-looking statements are typically identified by words such as "anticipate", "expect", "believe", "plan", "intend" or similar words suggesting future outcomes. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to: future dividends and any increase or decrease from current payment amounts; the establishment of future dividend levels with the intent of absorbing short-term market volatility over several quarters; plans regarding crude oil hedges and currency hedges in the future; the level of natural gas consumption in 2011 and beyond; the expected production, revenues, operating costs and Crown royalties for 2011; the expected price for crude oil and natural gas in 2011; the expected foreign exchange rates in 2011; the expected realized selling price, which includes the anticipated differential to WTI to be received in 2011 for Corporation's product; the anticipated impact of increases or decreases in oil prices, production, operating costs, foreign exchange rates and natural gas prices on the Corporation's cash flow from operations; the expected amount of total capital expenditures and anticipated target in-service dates for the Syncrude Emissions Reduction ("SER") project, the Mildred Lake mine train replacements, the Aurora North mine train relocations and the composite tails plant at the Aurora North mine; the expectation that the SER project will significantly reduce total sulphur dioxide and other emissions; the expectation that the Corporation will finance the major capital projects primarily through cash flow from operations; the expected improvement in bitumen recovery and lower maintenance requirements from wet crushing technology; the expected timing of site-preparation and construction of the Aurora North composite tails plant; the cost estimates for 2011 total capital expenditures and post-2011 major capital project spending and the expectation that the development of Aurora South will expand bitumen production by approximately 50 per cent before 2020.

You are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Although the Corporation believes that the expectations represented by such forward-looking statements are reasonable and reflect the current views of Corporation with respect to future events, there can be no assurance that such assumptions and expectations will prove to be correct.

The factors or assumptions on which the forward-looking information is based include, but are not limited to: the assumptions outlined in the Corporation's guidance document as posted on the Corporation's website at www.cdnoilsands.com as of the date hereof and as subsequently amended or replaced from time to time, including without limitation, the assumptions as to production, operating costs and oil prices; the successful and timely implementation of capital projects; the ability to obtain regulatory and Syncrude joint venture owner approval; our ability to either generate sufficient cash flow from operations to meet our current and future obligations or obtain external sources of debt and equity capital; the continuation of assumed tax, royalty and regulatory regimes and the accuracy of the estimates of our reserves volumes.

Some of the risks and other factors which could cause actual results or events to differ materially from current expectations expressed in the forward-looking statements contained in this MD&A and the related press release include, but are not limited to: the impacts of legislative or regulatory changes especially as such relate to royalties, taxation, the environment and tailings; the impact of technology on operations and processes and how new complex technology may not perform as expected; skilled labour shortages and the productivity achieved from labour in the Fort McMurray area; the supply and demand metrics for oil and natural gas; the impact that pipeline capacity and refinery demand have on prices for our products; the unanimous joint venture owner approval for major expansions and changes in product types; the variances of stock market activities generally; global economic conditions/volatility; normal risks associated with litigation, general economic, business and market conditions; the impact of Syncrude being unable to meet the conditions of its approval for its tailings management plan under Directive 074, and such other risks and uncertainties described in the Corporation's Annual Information Form dated March 10, 2011 and in the reports and filings made with securities regulatory authorities from time to time by the Corporation which are available on the Corporation's profile on SEDAR at www.sedar.com and on the Corporation's website at www.cdnoilsands.com.

You are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the forward-looking statements contained in this MD&A are made as of the date of this MD&A, and unless required by law, the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

NON-GAAP FINANCIAL MEASURES - In this MD&A and the related press release, we refer to financial measures that do not have any standardized meaning as prescribed by Canadian generally accepted accounting principles ("GAAP"). These non-GAAP financial measures include cash flow from operations, cash flow from operations on a per Share basis, net debt, total capitalization and net debt to total capitalization. These measures are indicators of the Corporation's capacity to fund capital expenditures, other investing activities, and dividends without incremental financing. In addition, the Corporation refers to various per barrel figures, such as net realized selling prices, operating costs and Crown royalties, which also are considered non-GAAP measures. We derive per barrel figures by dividing the relevant sales or cost figure by our sales volumes, which are net of purchased crude oil volumes in a period. Non-GAAP financial measures provide additional information that we believe is meaningful regarding the Corporation's operational performance, its liquidity and its capacity to fund dividends, capital expenditures and other investing activities. Users are cautioned that non-GAAP financial measures presented by the Corporation may not be comparable with measures provided by other entities.

Beginning this quarter, we are reporting cash flow from operations in total and on a per Share basis. Previously, we reported cash from operating activities. Cash flow from operations is calculated as cash from operating activities, as reported on the Consolidated Statement of Cash Flows, before changes in non-cash working capital. Cash flow from operations per Share is calculated as cash flow from operations divided by the weighted-average number of Shares outstanding in the period. We believe that cash flow from operations, which is not impacted by fluctuations in non-cash working capital balances, is more indicative of operational performance. The majority of our non-cash working capital is liquid and typically settles within 30 days.

Cash flow from operations is reconciled to cash from operating activities as
follows:
                                                         Three Months Ended
                                                                   March 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Cash flow from operations                           $    478       $    225
Change in non-cash working capital (1)                   (19)           104
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Cash from operating activities (1)                  $    459       $    329
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(1) As reported on the Consolidated Statements of Cash Flows

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

Canadian GAAP has been revised to incorporate International Financial Reporting Standards ("IFRS") and publicly traded companies like the Corporation are required to apply such standards for years beginning on or after January 1, 2011. Note 5 to the attached interim unaudited consolidated financial statements discloses the impact of the transition to IFRS on the Corporation's reported financial position, income and cash flows, including the nature and effect of changes in accounting policies from those used in the Corporation's Canadian GAAP audited consolidated financial statements for the year ended December 31, 2010.

First quarter 2010 financial measures reported in this MD&A as comparative figures have been adjusted to reflect the transition to IFRS, as have the financial measures for all 2010 quarters reported in the summary of quarterly results on page 12. The accounting policies applied in these interim unaudited consolidated financial statements are based on IFRS issued and outstanding as of April 28, 2011. Any subsequent changes to IFRS that are given effect in the Corporation's annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these interim consolidated financial statements, including the adjustments recognized on transition to IFRS.

The January 1, 2010 and December 31, 2010 balance sheets were adjusted to reflect the following:

--  The deferred tax liability was re-measured on transition at January 1,
    2010 using the 39 per cent individual tax rate applicable to earnings
    not distributed to trust unitholders. On conversion from an income
    trust to a corporate structure on December 31, 2010, the deferred tax
    liability was re-measured using the 25 per cent corporate tax rate,
    resulting in a deferred tax recovery in the fourth quarter of 2010.
    Prior to the adoption of IFRS, deferred taxes were measured using the
    25 per cent corporate tax rate.
--  The asset retirement obligation liability and related property, plant
    and equipment were re-measured on transition at January 1, 2010, and at
    the end of each reporting period, to reflect the current risk free
    interest rate. Prior to the adoption of IFRS, these were measured using
    a credit-adjusted interest rate and were not re-measured each reporting
    period for changes to this rate.
--  Employee future benefits and other liabilities were adjusted on
    transition at January 1, 2010, and at the end of each reporting period,
    to record previously unrecognized actuarial losses on Syncrude Canada's
    defined benefit pension plan.
Under IFRS, net income is adjusted to reflect the following:
--  Revenues are now reported net of Crown royalties; previously Crown
    royalties were reported as an expense.
--  Operating expenses have decreased reflecting the capitalization of major
    turnaround costs as property, plant and equipment; previously these
    costs were expensed. Operating expenses per barrel have likewise
    decreased.
--  Interest costs relating to certain assets being constructed are now
    capitalized; previously all interest costs were expensed.
--  Depreciation and depletion has increased reflecting the depreciation of
    capitalized turnaround costs partially offset by the reclassification of
    accretion of the asset retirement obligation. Accretion is now presented
    with interest as part of net finance expense.
--  Future income taxes are now referred to as deferred taxes.
--  Other less significant IFRS adjustments have impacted operating
    expenses, administration expenses, depreciation and depletion, and net
    finance expense.

While the IFRS adjustments do not impact the Corporation's total cash flow, cash flow from operations and cash used in investing activities have each been adjusted, by equal and offsetting amounts, to reflect the capitalization of major turnaround costs and interest costs on certain assets during construction.

REVIEW OF SYNCRUDE OPERATIONS

Synthetic crude oil ("SCO") production from the Syncrude Joint Venture ("Syncrude") during the first quarter of 2011 was the highest of any first quarter on record, totaling 28.9 million barrels, or 321,000 barrels per day, compared with 24.2 million barrels, or 269,000 barrels per day, during the first quarter of 2010. Net to the Corporation, production totaled 10.6 million barrels in the first quarter of 2011 compared with 8.9 million barrels in the first quarter of 2010, based on Canadian Oil Sands' 36.74 per cent working interest in Syncrude.

The increase in quarter-over-quarter production volumes reflects improved reliability through most of the operations in the first quarter of 2011 relative to the first quarter of 2010. First quarter 2010 volumes were impacted by the turnaround of the LC Finer and associated upgrading units.

Canadian Oil Sands' operating expenses were $387 million, or $35.53 per barrel, in the first quarter of 2011, compared with $339 million, or $37.89 per barrel, in the same quarter of 2010. The decrease in per barrel operating expenses was mainly due to higher sales volumes (see the "Operating Expenses" section of this MD&A for further discussion).

The productive capacity of Syncrude's facilities is approximately 350,000 barrels per day on average, including an allowance for downtime, and is referred to as "barrels per calendar day". All references to Syncrude's production capacity in this report refer to barrels per calendar day, unless stated otherwise. Canadian Oil Sands' production volumes differ from its sales volumes due to changes in inventory, which are primarily in-transit pipeline volumes.

SUMMARY OF QUARTERLY RESULTS
($ millions, except per Share and        2011                 2010
 volume amounts)                           Q1        Q4        Q3        Q2
----------------------------------------------------------------------------
Sales (1)                            $  1,016  $    912  $    692  $    842
Net income                           $    324  $    572  $    195  $    244
 Per Share, Basic & Diluted          $   0.67  $   1.18  $   0.40  $   0.50
Cash flow from operations (2)        $    478  $    398  $    229  $    380
 Per Share (2)                       $   0.99  $   0.82  $   0.47  $   0.79
Dividends                            $     97  $    242  $    242  $    242
 Per Share                           $   0.20  $   0.50  $   0.50  $   0.50
Daily average sales volumes
 (bbls) (3)                           120,894   114,739    96,477   118,569
Realized SCO selling price
 ($/bbl) (4)                         $  93.04  $  83.97  $  77.94  $  78.07
Operating expenses ($/bbl) (5)       $  35.53  $  35.81  $  37.86  $  30.93
Purchased natural gas price ($/GJ)   $   3.59  $   3.45  $   3.44  $   3.68
West Texas Intermediate (avg.
 US$/bbl) (6)                        $  94.60  $  85.24  $  76.21  $  78.05
Foreign exchange rates (US$/Cdn$):
 Average                             $   1.02  $   0.99  $   0.96  $   0.97
 Quarter-end                         $   1.03  $   1.01  $   0.97  $   0.94
($ millions, except per Share and        2010               2009 (7)
 volume amounts)                           Q1        Q4        Q3        Q2
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Sales (1)                            $    734  $    863  $    773  $    467
Net income                           $    176  $     96  $    247  $     46
 Per Share, Basic & Diluted          $   0.36  $   0.20  $   0.51  $   0.10
Cash flow from operations (2)        $    225  $    366  $    296  $     23
 Per Share (2)                       $   0.46  $   0.76  $   0.61  $   0.05
Dividends                            $    170  $    169  $    121  $     73
 Per Share                           $   0.35  $   0.35  $   0.25  $   0.15
Daily average sales volumes
 (bbls) (3)                            99,286   119,287   114,544    75,553
Realized SCO selling price
 ($/bbl) (4)                         $  82.06  $  78.67  $  73.31  $  67.92
Operating expenses ($/bbl) (5)       $  37.89  $  30.18  $  27.80  $  50.23
Purchased natural gas price ($/GJ)   $   4.95  $   4.33  $   2.90  $   3.09
West Texas Intermediate (avg.
 US$/bbl) (6)                        $  78.88  $  76.13  $  68.24  $  59.79
Foreign exchange rates (US$/Cdn$):
 Average                             $   0.96  $   0.95  $   0.91  $   0.86
 Quarter-end                         $   0.98  $   0.96  $   0.93  $   0.86
(1) Sales after crude oil purchases and transportation expense.
(2) Cash flow from operations and Cash flow from operations per Share are a
    non-GAAP measures and are defined on page 9 of this MD&A.
(3) Daily average sales volumes after crude oil purchases.
(4) Realized SCO selling price after foreign currency hedging.
(5) Derived from operating costs, as reported on the Consolidated Statements
    of Income and Comprehensive Income, divided by the sales volumes during
    the period.
(6) Pricing obtained from Bloomberg.
(7) Not adjusted for IFRS.
During the last eight quarters, the following items have had a significant
impact on the Corporation's financial results: 
--  fluctuations in U.S. dollar WTI oil prices have impacted the
    Corporation's sales, Crown royalties, net income and cash flow from
    operations;
--  U.S. to Canadian dollar exchange rate fluctuations have resulted in
    foreign exchange gains and losses on the revaluation of U.S. dollar
    denominated debt and have impacted commodity pricing;
--  fluctuations in the differential between SCO and Canadian dollar WTI oil
    prices have impacted the Corporation's sales, Crown royalties, net
    income and cash flow from operations;
--  planned and unplanned maintenance activities have impacted quarterly
    production volumes, revenues and operating expenses;
--  net income was increased in the fourth quarter of 2010 due to a $269
    million deferred tax recovery resulting from measuring the deferred tax
    liability at a lower tax rate upon conversion from an income trust to a
    corporate structure on December 31, 2010 (this deferred tax recovery was
    not recognized under Canadian GAAP before the adoption of IFRS);
--  depreciation and depletion expense was lower in 2010 and the first
    quarter of 2011 as a result of changes to the estimation methodology
    made in the first quarter of 2010; and
--  net income was reduced in the fourth quarter of 2009 by $148 million due
    to an impairment charge and goodwill write-down on the Arctic natural
    gas assets.

Quarterly variances in net income and cash flow from operations are caused mainly by fluctuations in crude oil prices, production and sales volumes, operating expenses and natural gas prices. Net income is also impacted by unrealized foreign exchange gains and losses, depreciation and depletion, impairment charges and deferred tax amounts.

While the supply/demand balance for crude oil affects selling prices, the impact of this relationship is difficult to predict and quantify and has not displayed significant seasonality. Natural gas prices are typically higher in winter months as heating demand rises, but this seasonality is influenced by weather conditions and North American natural gas inventory levels.

Syncrude production levels may not display seasonal patterns or trends. While maintenance and turnaround activities are typically scheduled to avoid the winter months, the exact timing of unit shutdowns cannot be precisely scheduled, and unplanned outages may occur. The costs of major turnarounds have been capitalized as property, plant and equipment and depreciated over the period until the next scheduled turnaround. The costs of all other turnarounds and maintenance activities have been expensed in the period incurred, which can result in volatility in quarterly operating costs. Because a large proportion of operating costs are fixed, the effect on per barrel operating costs of the non-major turnaround and maintenance activities is amplified as the facilities are generally producing at reduced rates when this work is occurring.

REVIEW OF FINANCIAL RESULTS
                                                         Three Months Ended
(millions of Canadian dollars, except per                          March 31
 Share and per barrel volume amounts)                   2011           2010
----------------------------------------------------------------------------
Cash flow from operations (1)                    $       478    $       225
 Per Share (2)                                   $      0.99    $      0.46
Net Income                                       $       324    $       176
 Per Share, Basic and Diluted                    $      0.67    $      0.36
Sales Volumes (3)
 Total (MMbbls)                                         10.9            8.9
 Daily average (bbls)                                120,894         99,286
Realized SCO Selling Price ($/bbl)               $     93.04    $     82.06
West Texas Intermediate (average $US/bbl) (4)    $     94.60    $     78.88
Operating Expenses ($/bbl)                       $     35.53    $     37.89
Capital Expenditures                             $       109    $       112
Dividends                                        $        97    $       170
 Per Share                                       $      0.20    $      0.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Cash flow from operations is a non-GAAP measure and is defined on page 9
    of this MD&A.
(2) Cash flow from operations per Share is a non-GAAP measure and is defined
    on page 9 of this MD&A.
(3) The Corporation's sales volumes differ from its production volumes due
    to changes in inventory, w hich are primarily in-transit pipeline
    volumes. Sales volumes are net of purchased crude oil volumes.
(4) Pricing obtained from Bloomberg.
Net income per Barrel
                                        Three Months Ended
                                            March 31
($ per bbl) (1)                          2011           2010       Variance
----------------------------------------------------------------------------
Sales net of crude oil
purchases and transportation
 expense                                93.36          82.10          11.26
Operating expenses                     (35.53)        (37.89)          2.36
Crown royalties                         (6.49)         (8.74)          2.25
----------------------------------------------------------------------------
                                        51.34          35.47          15.87
----------------------------------------------------------------------------
Non-production expenses                 (3.00)         (4.04)          1.04
Administration and insurance
 expenses                               (1.04)         (1.23)          0.19
Depreciation and depletion              (8.77)        (11.82)          3.05
Net finance expense                     (1.27)         (2.91)          1.64
Foreign exchange gain (loss)             1.99           3.72          (1.73)
Deferred tax (expense) recovery         (9.43)          0.48          (9.91)
----------------------------------------------------------------------------
                                       (21.52)        (15.80)         (5.72)
----------------------------------------------------------------------------
Net income per barrel                   29.82          19.67          10.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales volumes (MMbbls) (2)               10.9            8.9            2.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Unless otherwise specified, the per barrel measures in this MD&A have
    been derived by dividing the relevant revenue or cost item by the sales
    volumes in the period.
(2) Sales volumes, net of purchased crude oil volumes.

Cash flow from operations was $478 million, or $0.99 per Share, for the first quarter of 2011 compared with cash flow from operations of $225 million, or $0.46 per Share, for the first quarter of 2010. Higher sales in the first quarter of 2011 were partially offset by higher operating expenses.

Sales net of crude oil purchases and transportation costs totaled $1,016 million in the first quarter of 2011 compared with $734 million in the first quarter of 2010. The increase in quarter-over-quarter sales reflects higher crude oil prices and sales volumes in the first quarter of 2011 (see the "Sales net of Crude Oil Purchases and Transportation Expense" section of this MD&A for further discussion).

Crown royalties totaled $71 million in the first quarter of 2011 compared with $78 million in the first quarter of 2010. The decrease in 2011 Crown royalties relative to 2010 was due to lower deemed bitumen revenues and higher allowed costs (see the "Crown royalties" section of this MD&A for further discussion of Crown royalties).

Operating expenses in the first quarter of 2011 totaled $387 million, or $35.53 per barrel, compared with $339 million, or $37.89 per barrel, in the first quarter of 2010. The decrease in per barrel operating expenses was due to higher sales volumes (see the "Operating Expenses" section of this MD&A for further discussion).

Net income totaled $324 million, or $0.67 per Share, in the first quarter of 2011, compared with $176 million, or $0.36 per Share, for the first quarter of 2010. The variances in sales, Crown royalties, and operating expenses described earlier impacted net income, as did variances in foreign exchange gains, depreciation and depletion expense and deferred taxes.

Depreciation and depletion expense totaled $95 million in the first quarter of 2011 compared with $106 million in the first quarter of 2010. The decrease is mainly due to changes in the estimated useful lives of certain tangible equipment.

Foreign exchange gains on the revaluation of long-term debt fell to $25 million in the first quarter of 2011 from $34 million in the same period of 2010.

As a result of the conversion from an income trust to a corporate structure on December 31, 2010, Canadian Oil Sands recorded a $103 million deferred tax expense in the first quarter of 2011 versus a $4 million recovery in the first quarter of 2010.

Net debt, comprised of long-term debt less cash and cash equivalents, decreased to $0.9 billion at March 31, 2011 from $1.2 billion at December 31, 2010. The decrease is a result of cash flow from operations exceeding capital expenditures, dividends and reclamation trust fund contributions. A stronger Canadian dollar at March 31, 2011 relative to December 31, 2010 further reduced the Canadian dollar equivalent value of the U.S. dollar denominated long-term debt.

Capital expenditures in the first quarter of 2011 were $109 million compared with $112 million in the first quarter of 2010.

Sales net of Crude Oil Purchases and Transportation Expense
                                          Three Months Ended
                                              March 31
($ millions)                             2011           2010       Variance
----------------------------------------------------------------------------
Sales (1)                         $     1,083  $         899    $       184
Crude oil purchases                       (59)          (159)           100
Transportation expense                     (8)            (6)            (2)
----------------------------------------------------------------------------
                                  $     1,016  $         734    $       282
Sales volumes (MMbbls) (2)               10.9            8.9            2.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Sales include sales of purchased crude oil and sulphur and proceeds
    from insurance claims.
(2) Sales volumes, net of purchased crude oil volumes.
----------------------------------------------------------------------------
Realized SCO selling price
 (average $Cdn/bbl) (3)                 93.04          82.06          10.98
West Texas Intermediate
 (average $US/bbl)                      94.60          78.88          15.72
SCO premium (discount)
 (weighted-average $Cdn/bbl)             0.35          (0.05)          0.40
Average foreign exchange rates
 (US$/Cdn$)                              1.02           0.96           0.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(3) SCO sales net of crude oil purchases and transportation expense divided
    by sales volumes, net of purchased crude oil volumes.

The increase in sales net of crude oil purchases and transportation expense in the first quarter of 2011 relative to the first quarter of 2010 reflects a higher realized selling price for our SCO and higher sales volumes.

During the first quarter of 2011, the West Texas Intermediate ("WTI") crude oil price averaged U.S. $95 per barrel compared with U.S. $79 per barrel in the first quarter of 2010. The impact of the higher U.S. dollar WTI oil price was offset somewhat by a stronger Canadian dollar, which averaged $1.02 U.S./Cdn for the first quarter of 2011 versus $0.96 U.S./Cdn for the first quarter of 2010.

The Corporation's SCO price is also affected by the premium or discount realized relative to Canadian dollar WTI (the "differential"). In the first quarter of 2011, the Corporation realized a weighted-average SCO premium of $0.35 per barrel versus a $0.05 per barrel discount in the first quarter of 2010. The differential is dependent upon the supply and demand for SCO and, accordingly, can change quickly depending upon the short-term supply and demand dynamics in the market and pipeline availability for transporting crude oil.

The Corporation's first quarter sales volumes averaged 121,000 barrels per day in 2011 and 99,000 barrels per day in 2010. The increase in quarter-over-quarter sales volumes reflected improved reliability in the first quarter of 2011. In addition, first quarter 2010 volumes were impacted by the turnaround of the LC Finer and associated upgrading units.

The Corporation purchases crude oil from third parties, from time to time, to fulfill sales commitments with customers when there are shortfalls in Syncrude's production, and to facilitate certain transportation and tankage arrangements and operations. Sales includes the sale of purchased crude oil while the cost of these purchases are included in crude oil purchases and transportation expense. Crude oil purchases were lower in the first quarter of 2011, relative to the first quarter of 2010. Higher purchased volumes in the first quarter of 2010, due to additional activities to support unanticipated production shortfalls and incremental purchases associated with tankage arrangements, were partially offset by higher prices on crude oil purchases in the first quarter of 2011.

Crown Royalties

In the first quarter of 2011, Crown royalties decreased to $71 million, or $6.49 per barrel, from $78 million, or $8.74 per barrel, in the comparable 2010 quarter, reflecting lower deemed bitumen revenues and higher allowed costs in 2011.

The Syncrude Royalty Amending Agreement requires that bitumen be valued by a formula that references the value of bitumen based on a Canadian heavy oil price adjusted for reasonable quality, transportation and handling deductions (including diluent costs) to reflect the quality and location differences between Syncrude's bitumen and the reference price of bitumen. The Alberta government and the Syncrude owners are in discussions to determine the appropriate adjustments for quality, transportation and handling. In December 2010 the Alberta government provided a modified notice of a bitumen value for Syncrude (the "Syncrude BVM"). For estimating and paying royalties, Syncrude used a bitumen value based on Syncrude and its owners' interpretation of the Syncrude Royalty Amending Agreement, which is different than the Syncrude BVM. As a result, Canadian Oil Sands' share of the royalties recognized for the period from January 1, 2009 to March 31, 2011 are estimated to be approximately $35 million less than the amount calculated under the Syncrude BVM. The Syncrude owners and the Alberta government continue to discuss the basis for reasonable quality, transportation, and handling adjustments but if such discussions do not result in an agreed upon solution, either party may seek judicial determination of the matter. Should these discussions or a judicial determination result in a deemed bitumen value different than that used by Syncrude for estimating and paying royalties, the cumulative impact on Canadian Oil Sands' share of royalties since January 1, 2009 will be recognized immediately and impact both net income and cash royalties accordingly.

Operating Expenses

The following table breaks down operating expenses into their major components and shows operating expenses per barrel of bitumen and SCO. The information allocates costs to bitumen production and upgrading on the basis used to determine bitumen royalties.

                                                Three Months Ended
                                                      March 31
                                              2011                2010
----------------------------------------------------------------------------
                                        $/bbl     $/bbl     $/bbl     $/bbl
                                      Bitumen       SCO   Bitumen       SCO
----------------------------------------------------------------------------
 Bitumen production                  $  21.56  $  24.54  $  21.83  $  27.19
 Internal fuel allocation (2)            2.58      2.93      3.27      4.07
----------------------------------------------------------------------------
 Total produced bitumen costs           24.14     27.47     25.10     31.26
 Upgrading costs (1)                              13.59               14.09
 Less: Internal fuel allocation to
  bitumen (2)                                     (2.93)              (4.07)
 Bitumen purchases                                    -                   -
----------------------------------------------------------------------------
 Total Syncrude operating costs                   38.13               41.28
 Canadian Oil Sands' adjustments (3)              (2.60)              (3.39)
----------------------------------------------------------------------------
Total operating expenses                          35.53               37.89
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands of barrels per day)        Bitumen       SCO   Bitumen       SCO
----------------------------------------------------------------------------
Syncrude production volumes               366       321       336       269
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Upgrading costs include the production and ongoing maintenance costs
    associated with processing and upgrading of bitumen to SCO.
(2) Natural gas prices averaged $3.59 per GJ and $4.95 per GJ in the first
    quarters of 2011 and 2010, respectively.
(3) Canadian Oil Sands' adjustments mainly pertain to actual reclamation
    costs, which Syncrude includes in operating expenses and Canadian Oil
    Sands recognizes through its asset retirement obligation, and expenses
    as depreciation and depletion and accretion.
                                                      Three Months Ended
                                                            March 31
($/bbl of SCO)                                          2011           2010
----------------------------------------------------------------------------
Production costs                               $       30.59    $     32.66
Purchased energy                                        4.94           5.23
----------------------------------------------------------------------------
 Total operating expenses                      $       35.53    $     37.89
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(GJs/bbl of SCO)
----------------------------------------------------------------------------
Purchased energy consumption                            1.38           1.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In the first quarter of 2011, operating expenses were $387 million, averaging $35.53 per barrel, compared with $339 million, or $37.89 per barrel, in the first quarter of 2010. The increase in operating expenses for the first quarter of 2011 relative to the first quarter of 2010 was primarily due:

--  a larger increase in the value of Syncrude's long-term incentive plans
    in 2011 compared with 2010. A portion of Syncrude's long-term incentive
    plans is based on the market return performance of several Syncrude
    owners' shares, which was stronger in 2011 than in 2010;
--  increased diesel costs due to higher prices and increased volumes
    reflecting low sulphur diesel regulations; and --  higher maintenance
    costs on mining equipment and tailings and slurry pipe, partially
    offset by lower maintenance costs in upgrading.

While total operating expenses for the first quarter of 2011 were higher than the same period in 2010, per barrel costs were lower due to the increase in sales volumes.

Non-Production Expenses

Non-production expenses totaled $33 million in the first quarter of 2011, slightly lower than $36 million in the first quarter of 2010.

Non-production expenses consist primarily of development expenditures relating to capital programs, such as pre-feasibility engineering, technical and support services, research and development, evaluation drilling, and regulatory and stakeholder consultation expenditures. Non-production expenses can vary on a periodic basis depending on the number of projects underway and the development stage of the projects.

Net Finance Expense
                                                      Three Months Ended
                                                            March 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Interest costs                                 $          21    $        26
 Less capitalized interest                     $         (11)   $        (6)
----------------------------------------------------------------------------
Interest expense                               $          10    $        20
Accretion of asset retirement obligation                   4              5
----------------------------------------------------------------------------
Net finance expense                            $          14    $        25
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Interest costs totaled $21 million in the first quarter of 2011 compared with $26 million in the first quarter of 2010 mainly because of 2010 consent solicitation fees relating to the conversion from an income trust to a corporate structure. In addition, a higher portion of the 2011 interest costs were capitalized as cumulative capital expenditures on qualifying assets rose. As such, net finance expense decreased to $14 million in the first quarter of 2011 from $25 million in the comparable 2010 quarter.

Depreciation and Depletion Expense

Depreciation and depletion expense decreased to $95 million in the first quarter of 2011 from $106 million in the first quarter of 2010 due primarily to changes in the estimated useful lives of certain tangible equipment.

Foreign Exchange (Gain) Loss
                                                       Three Months Ended
                                                            March 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Foreign exchange (gain) loss - long-term debt    $       (25)   $       (34)
Foreign exchange (gain) loss - other                       3              1
----------------------------------------------------------------------------
 Total foreign exchange (gain) loss              $       (22)   $       (33)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Foreign exchange gains/losses are primarily the result of revaluations of our U.S. dollar denominated long-term debt caused by fluctuations in U.S. and Canadian dollar exchange rates.

The foreign exchange gains on long-term debt in the first quarter of 2011 were the result of a strengthening in the value of the Canadian dollar relative to the U.S. dollar to $1.03 U.S./Cdn at March 31, 2011 from $1.01 U.S./Cdn at December 31, 2010. The foreign exchange gains in the first quarter of 2010 were likewise the result of a strengthening in the value of the Canadian dollar relative to the U.S. dollar to $0.98 U.S./Cdn at March 31, 2010 from $0.96 U.S./Cdn at December 31, 2009.

Deferred Tax

Deferred tax expense rose to $103 million in the first quarter of 2011 relative to a $4 million recovery in the first quarter of 2010. An increase in the temporary differences between the accounting and tax values of Canadian Oil Sands' assets and liabilities reflects an estimated decrease in tax pools used to shelter taxable income in the first quarter of 2011. Under the trust structure in 2010, taxable income was sheltered with the payment of distributions.

Asset Retirement Obligation

Canadian Oil Sands' asset retirement obligation decreased to $462 million at March 31, 2011 from $500 million at December 31, 2010. The decrease reflects an increase in the risk free interest rate used to discount future reclamation payments as well as $29 million of reclamation spending during the first quarter of 2011. The $37 million current portion of the asset retirement obligation is included in accounts payable and accrued liabilities, while the $425 million non-current portion is separately presented as an asset retirement obligation on the Consolidated Balance Sheet.

CAPITAL EXPENDITURES

In the first quarter of 2011 capital expenditures totaled $109 million compared with expenditures of $112 million in the first quarter of 2010.

The Syncrude Emissions Reduction ("SER") project, which commenced in 2006 and involves retrofitting technology into the operation of Syncrude's original two cokers by the end of 2011 in order to reduce total sulphur dioxide and other emissions, accounted for $30 million and $27 million of the capital spent in the first quarters of 2011 and 2010, respectively.

Mine train replacements and relocations, which involve reconstructing or relocating crushers, surge facilities and slurry preparation equipment to support tailings storage, accounted for $22 million and $9 million of the capital spent in the first quarters of 2011 and 2010, respectively.

The Aurora North Tailings Management project, which involves the construction of a composite tails plant at the Aurora North mine, accounted for $7 million and $3 million of the capital spent in the first quarters of 2011 and 2010, respectively.

Interest costs of $11 million were capitalized in the first quarter of 2011, compared with $6 million in the first quarter of 2010, due to higher cumulative capital expenditures on qualifying assets in the first quarter of 2011.

There were no turnaround costs capitalized in the first quarter of 2011 whereas, in the first quarter of 2010, $14 million of costs relating to the LC Finer turnaround were capitalized.

The remaining capital expenditures related to other investment activities, including relocation of tailings facilities and other infrastructure projects.

More information on Canadian Oil Sands' capital projects is provided in the "Outlook" section of this MD&A.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Contractual obligations are summarized in the Corporation's 2010 annual MD&A and include future cash payments that the Corporation is required to make under existing contractual arrangements that it has entered into directly or as a 36.74 per cent owner in Syncrude. There have been no significant new contractual obligations or commitments relative to the 2010 year-end disclosure.

DIVIDENDS

On April 28, 2011, the Corporation declared a quarterly dividend of $0.30 per Share in respect of the second quarter of 2011 for a total dividend of approximately $145 million. The dividend will be paid on May 31, 2011 to Shareholders of record on May 26, 2011.

The dividend increase reflects higher than estimated cash flows in the first quarter of the year and our revised outlook for 2011 provided in this report. We intend to fund major capital projects with cash flow from operations while maintaining our strong balance sheet to reduce the risk of potential oil price declines, capital cost increases, or major operational upsets.

Dividend payments will continue to be determined on a quarterly basis in the context of current and expected crude oil prices, economic conditions, Syncrude's operating performance, taxation, and the Corporation's capacity to finance operating and investing obligations. Dividend levels will be established with the intent of absorbing short-term market volatility over several quarters; however, the variable nature of cash flow from operations, net income and capital spending means Canadian Oil Sands' dividend amounts are likely to be variable and any expectations regarding the stability or sustainability of dividends are unwarranted and should not be inferred.

LIQUIDITY AND CAPITAL RESOURCES
                                                    March 31    December 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Long-term debt                                   $     1,081    $     1,251
Cash and cash equivalents                               (189)           (80)
----------------------------------------------------------------------------
 Net debt                                        $       892    $     1,171
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity                             $     3,955    $     3,725
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capitalization (1)                         $     4,847    $     4,896
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net debt to total capitalization (%)                      18             24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Net debt plus Shareholders' equity. Net debt, total capitalization, as
    well as net debt to total capitalization are non-GAAP measures.

Net debt decreased to $0.9 billion at March 31, 2011 from $1.2 billion at December 31, 2010. Cash flow from operations exceeded capital expenditures, dividends and reclamation trust fund contributions in the first quarter of 2011 resulting in the decreased leverage. In addition, a stronger Canadian dollar at March 31, 2011 relative to December 31, 2010 reduced the Canadian dollar equivalent value of the U.S. dollar denominated long-term debt by $25 million.

Shareholders' equity increased to $4.0 billion at March 31, 2011 from $3.7 billion at December 31, 2010 as net income exceeded dividends in the first quarter of 2011.

Debt covenants restrict Canadian Oil Sands' ability to sell all or substantially all of its assets or change the nature of its business, and limit total debt-to-total capitalization to 55 per cent. With a net debt-to-total capitalization of approximately 18 per cent at March 31, 2011, a significant increase in debt or decrease in Shareholders' equity would be required before covenants restrict the Corporation's financial flexibility.

SHAREHOLDERS' CAPITAL AND TRADING ACTIVITY

The Corporation's shares trade on the Toronto Stock Exchange under the symbol COS. The Corporation had a market capitalization of approximately $16 billion with 485 million shares outstanding and a closing price of $32.67 per Share on March 31, 2011. The following table reflects the trading activity for the first quarter of 2011.

Canadian Oil Sands Limited -            First
 Trading Activity                     Quarter     March  February   January
                                         2011      2011      2011      2011
----------------------------------------------------------------------------
Share price
 High                               $   33.94 $   33.94 $   30.95 $   27.49
 Low                                $   24.98 $   28.50 $   27.51 $   24.98
 Close                              $   32.67 $   32.67 $   30.05 $   27.49
Volume of Shares traded (millions)      167.1      47.6      61.2      58.3
Weighted average Shares outstanding
 (millions)                             484.5     484.5     484.4     484.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------

FINANCIAL RISK MANAGEMENT

The Corporation did not have any financial derivatives outstanding at March 31, 2011.

Crude Oil Price Risk

Canadian Oil Sands' revenues are impacted by changes in both the U.S. dollar denominated crude oil prices and U.S./Cdn FX rates. Over the last three years, daily WTI prices have experienced significant volatility, ranging from U.S.$145 per barrel to U.S.$34 per barrel. Also, supply, demand, and other market factors can vary significantly between regions and, as a result, the spreads between crude oil benchmarks, such as WTI and European Brent Crude, can be volatile.

Canadian Oil Sands prefers to remain un-hedged on crude oil prices; however, during periods of significant capital spending and financing requirements, management may hedge prices and exchange rates to reduce revenue and cash flow volatility. The Corporation did not have any crude oil price hedges in place during the first quarters of 2011 or 2010; instead, a strong balance sheet was used to mitigate the risk around crude oil price movements. As at April 28, 2011, and based on current expectations, the Corporation remains un-hedged on its crude oil price exposure.

Foreign Currency Risk

Canadian Oil Sands' results are affected by fluctuations in the U.S./Cdn currency exchange rates, as revenues generated are based on a U.S. dollar WTI benchmark price while operating expenses and capital expenditures are denominated primarily in Canadian dollars. Our revenue exposure is partially offset by U.S. dollar obligations, such as interest costs on U.S. dollar denominated long-term debt (Senior Notes) and our share of Syncrude's U.S. dollar vendor payments. In addition, when our U.S. dollar Senior Notes mature, we have exposure to U.S. dollar exchange rates on the principal repayment of the notes. This repayment of U.S. dollar debt acts as a partial economic hedge against the U.S. dollar denominated revenue payments we receive from our customers.

In the past, the Corporation has hedged foreign currency exchange rates by entering into fixed rate currency contracts. The Corporation did not have any foreign currency hedges in place during the first quarter of 2011 or 2010, and does not currently intend to enter into any new currency hedge positions. The Corporation may, however, hedge foreign currency exchange rates in the future, depending on the business environment and growth opportunities.

Interest Rate Risk

Canadian Oil Sands' net income and cash flow from operations are impacted by U.S. and Canadian interest rate changes because our credit facilities and investments are exposed to floating interest rates. In addition, we are exposed to the refinancing of maturing long-term debt at prevailing interest rates. As at March 31, 2011, there were no amounts drawn on the credit facilities ($145 million - December 31, 2010) and the next long-term debt maturity is in 2013. The Corporation did not have a significant exposure to interest rate risk based on the amount of floating rate debt or investments outstanding during the quarter.

Liquidity Risk

Liquidity risk is the risk that Canadian Oil Sands will not be able to meet its financial obligations as they fall due. Canadian Oil Sands actively manages its liquidity risk through its cash, debt and equity strategies. The next long-term debt maturity is in August, 2013, and the $800 million credit facility does not expire until April, 2012.

Credit Risk

Canadian Oil Sands is exposed to credit risk primarily through customer accounts receivable balances and financial counterparties with whom the Corporation has invested its cash or from whom it has purchased its term deposits, and with its insurance providers in the event of an outstanding claim. The maximum exposure to any one customer or financial counterparty is managed through a credit policy that limits exposure based on credit ratings.

Canadian Oil Sands carries credit insurance to help mitigate a portion of the impact should a loss occur and continues to transact primarily with investment grade customers. The vast majority of accounts receivable at December 31, 2010 was due from investment grade energy producers, financial institutions, and refinery-based customers.

At March 31, 2011, our cash and cash equivalents were invested mainly in term deposits with high-quality senior banks. As of April 28, 2011, there are no financial assets that are past their maturity or impaired due to credit risk-related defaults.

CHANGES IN ACCOUNTING POLICIES

Apart from the changes described in the "Transition to International Financial Reporting Standards" section of this MD&A, there were no new accounting policies adopted, nor any changes to accounting policies, in the first quarter of 2011.

NEW ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued by the CICA during the first quarter of 2011 that are expected to have a material impact on the Corporation.

OUTLOOK
(millions of Canadian dollars, except volume      January 27,      April 28,
 and per barrel amounts)                                2011           2011
----------------------------------------------------------------------------
Syncrude production (MMbbls)                             110            110
Canadian Oil Sands sales (MMbbls)                       40.4           40.4
Sales, net of crude oil purchases and
 transportation                                        3,188          3,890
Operating expenses                                     1,487          1,516
Operating expenses per barrel                          36.79          37.51
Crown royalties                                          181            252
Capital expenditures                                     927            979
Cash flow from operations                              1,214          1,915
Business environment assumptions
West Texas Intermediate (US$/bbl)                $        80    $        95
Premium (Discount) to average C$ WTI prices
 (C$/bbl)                                        $     (2.75)   $      4.00
Foreign exchange rate (US$/Cdn$)                 $      0.98    $      1.03
AECO natural gas (Cdn$/GJ)                       $      4.00    $      4.00

The outlook for production remains unchanged from the guidance provided on January 27, 2011. Canadian Oil Sands estimates 2011 Syncrude production of 110 million barrels (40.4 million barrels, net to COS), with a production range of 102 to 115 million barrels. This is equivalent to 301,400 barrels per day (110,700 barrels per day net to COS). The 110 million barrel single-point estimate includes one planned coker turnaround in the second half of the year.

Other estimates have been revised from the January guidance. The estimate for operating costs increased to $37.51 per barrel. Capital expenditures are now estimated at $979 million, including $614 million for major capital projects, $305 million for regular maintenance of the business and other projects, and $60 million in capitalized interest. In accordance with IFRS, a portion of interest costs are capitalized with an offsetting reduction to interest expense. Excluding capitalized interest, the forecast is largely unchanged.

The April 28, 2011 Outlook assumes an increased U.S. $95 per barrel WTI oil price, an SCO premium to Cdn dollar WTI of $4.00 per barrel, and a stronger U.S./Cdn foreign exchange rate of $1.03. These assumptions result in estimated sales of $3,890 million, or $96 per barrel in 2011.

The increase in our forecasted SCO premium to Cdn dollar WTI reflects recent operational upsets and maintenance at several oil sands plants, which have reduced SCO supply and resulted in significant premiums relative to WTI. These supply disruptions are expected to be resolved over the course of the year, which will likely result in SCO premiums decreasing in the second half of 2011.

We are estimating cash flow from operations of approximately $1.9 billion, or $3.95 per Share, in 2011. After deducting forecast 2011 capital expenditures, we estimate $936 million in remaining cash flow from operations for the year, or $1.93 per Share.

Changes in certain factors and market conditions could potentially impact Canadian Oil Sands' Outlook. The following table provides a sensitivity analysis of the key factors affecting the Corporation's performance.

2011 Outlook Sensitivity Analysis (April 28, 2011)
                                                  Cash flow from Operations
                                                         Increase
                                           Annual
Variable (1)                          Sensitivity   $ millions      $/Share
----------------------------------------------------------------------------
Syncrude operating costs decrease      C$1.00/bbl          $33        $0.07
Syncrude operating costs decrease    C$50 million          $15        $0.03
WTI crude oil price increase          US$1.00/bbl          $33        $0.07
Syncrude production increase       2 million bbls          $59        $0.12
Canadian dollar weakening              US$0.01/C$          $30        $0.06
AECO natural gas price decrease         C$0.50/GJ          $19        $0.04
----------------------------------------------------------------------------
(1) An opposite change in each of these variables will result in the
    opposite cash flow from operations impacts. Canadian Oil Sands
    anticipates $nil current taxes in 2011. As such, the sensitivities in
    the table above do not reflect any impact for current taxes.

The 2011 Outlook contains forward-looking information and users are cautioned that the actual amounts may vary from the estimates disclosed. Please refer to the "Forward-Looking Information Advisory" section of this MD&A for the risks and assumptions underlying this forward-looking information.

Major Capital Projects

The following tables provide cost and schedule estimates for Syncrude's major capital projects that have reached a certain stage of definition. In particular, they do not provide cost estimates for Aurora South development, other tailings management infrastructure or maintenance of business post 2011:

Major Capital Projects(1)
Total Project Cost and Schedule Estimates(2)
                              Spent to   Total Cost                  Target 
                          Dec 31, 2010     Estimate  Estimated % In-Service 
Project                    ($ millions) ($ billions)    Accuracy       Date 
----------------------------------------------------------------------------
Syncrude                                                                    
 Emissions                                                                  
 Reduction (SER)  Syncrude  $    1,108   $      1.6     +10%/-10%   Q4 2011 
Retrofit         COS share         407          0.6                         
 technology into                                                            
 Syncrude's                              
 original two                                                               
 cokers to                                                                 
 reduce total                                                               
 sulphur dioxide                                                            
 and other                                                                  
 emissions                                                                  
Mildred Lake                                                                
 Mine Train                                                                 
 Replacement      Syncrude         166          3.6     +25%/-25%   Q4 2014 
Reconstruct      COS share          61          1.3                         
 crushers, surge                                                            
 facilities,     
 and slurry prep                                                            
 facilities to                                                              
 support                                                                    
 tailings storage                                                           
 requirements                                                               
Aurora North                                                                
 Mine Train                                                                 
 Relocation       Syncrude          51          0.9     +25%/-25%   Q1 2014 
Relocate         COS share          19          0.3                         
 crushers, surge                                                            
 facilities,     
 and slurry prep                                                            
 facilities to                                                              
 support                                                                    
 tailings storage                                                           
 requirements                                                               
Aurora North                                                                
 Tailings                                                                   
 Management       Syncrude          59          0.8     +25%/-25%   Q4 2013 
Construct        COS share          22          0.3                         
 composite tails                                                            
 (CT) plant      
 at the Aurora                                                              
 North mine                                                                 
----------------------------------------------------------------------------
Total             Syncrude  $    1,384   $      6.9                         
                 COS share         509          2.5                         
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Major Capital Projects(1)                                                   
Annual Spending Profile(2)                                                  
                                            Cost Estimate                   
                 Spent to --------------------------------------------------
                   Dec 31,                                                  
                     2010      2011      2012      2013      2014     Total 
                       ($        ($        ($        ($        ($        ($ 
                 millions) millions) billions) billions) billions) billions)
----------------------------------------------------------------------------
Syncrude                                                                    
Major capital                                                               
 projects         $ 1,384   $ 1,672   $   1.9   $   1.7   $   0.3   $   6.9 
Regular                                                                     
 maintenance of                                                             
 the business                                                               
 and other                                                                  
 projects                       831                                         
                          ----------                                        
Total capital                                                               
 expenditures               $ 2,503                                         
----------------------------------------------------------------------------
Canadian Oil                                                                
 Sands share                                                                
Major capital                                                               
 projects         $   509   $   614   $   0.7   $   0.6   $   0.1   $   2.5 
Regular                                                                     
 maintenance of                                                             
 the business                                                               
 and other                                                                  
 projects                       305                                         
                          ----------                                        
Total direct                                                                
 capital                                                                    
 expenditures                   919                                         
Capitalized                                                                 
 interest                        60                                         
                          ----------                                        
Total capital                                                               
 expenditures               $   979                                         
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Major capital projects include the Syncrude Emissions Reduction (SER),
    Mildred Lake Mine Train Replacement, Aurora North Mine Train Relocation
    and Aurora North Tailings Management.  Major Capital Projects do not
    include projects that have not reached sufficient design definition,
    such as Aurora South and other tailings management infrastructure.
(2) Total project costs include both capital costs and certain
    non-production costs.  Costs exclude capitalized interest.

Canadian Oil Sands plans to finance these major capital projects primarily through cash flow from operations.

Beyond 2014, Syncrude's capital program includes development of a group of undeveloped leases called Aurora South aimed at expanding bitumen production by approximately 50 per cent before 2020. Syncrude is in the process of developing cost estimates for this expansion, which expansion must also be approved by the Syncrude joint venture owners.

The major capital projects descriptions and tables and the expectations regarding the development of Aurora South contain forward-looking information and users of this information are cautioned that the actual yearly and total capital expenditures, the actual in-service dates for the major capital projects and the actual level and timing of bitumen production growth expected from the development of Aurora South may vary from the plans disclosed. The capital expenditure cost estimates and major capital project target in-service dates and expectation regarding the development of Aurora South are based on current capital spending plans. Please refer to the "Forward-Looking Information Advisory" section of this MD&A for the risks and assumptions underlying this forward-looking information. For a list of additional risk factors that could cause the actual amount of the capital expenditures and the major capital project target in-service dates and the level and timing of bitumen production growth expected from the development of Aurora South to differ materially, please refer to the Corporation's Annual Information Form dated March 10, 2011 which is available on the Corporation's profile on SEDAR at www.sedar.com and on the Corporation's website at www.cdnoilsands.com.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
                                                      Three Months Ended
                                                            March 31
($ millions, except per Share amounts)                  2011           2010
----------------------------------------------------------------------------
Sales                                            $     1,083    $       899
Crown royalties (Note 12)                                (71)           (78)
----------------------------------------------------------------------------
Revenues                                               1,012            821
----------------------------------------------------------------------------
Expenses:
 Operating                                               387            339
 Non-production                                           33             36
 Crude oil purchases and transportation                   67            165
 Administration                                            9              9
 Insurance                                                 2              2
 Depreciation and depletion                               95            106
----------------------------------------------------------------------------
                                                         593            657
----------------------------------------------------------------------------
Earnings from operating activities                       419            164
 Foreign exchange gain                                   (22)           (33)
 Net finance expense (Note 11 )                            14             25
----------------------------------------------------------------------------
Earnings before taxes                                    427            172
 Deferred tax expense (recovery)                         103             (4)
----------------------------------------------------------------------------
Net income                                               324            176
Other comprehensive loss, net of income taxes
 Reclassification of derivative gains to net
  income                                                  (1)            (1)
----------------------------------------------------------------------------
Comprehensive income                             $       323    $       175
----------------------------------------------------------------------------
Weighted average shares (millions)                       485            484
Shares, end of period (millions)                         485            484
Net income per share:
 Basic and diluted                               $      0.67    $      0.36
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
                                                       Three Months Ended
                                                            March 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Retained earnings
 Balance, beginning of period                    $     1,034    $       802
 Net income                                              324            176
 Dividends                                               (97)          (170)
----------------------------------------------------------------------------
 Balance, end of period                                1,261            808
----------------------------------------------------------------------------
Accumulated other comprehensive income
 Balance, beginning of period                             15             18
 Reclassification of derivative gains to net
  income                                                  (1)            (1)
----------------------------------------------------------------------------
 Balance, end of period                                   14             17
----------------------------------------------------------------------------
Shareholders' capital
 Balance, beginning of period                          2,671          2,671
 Issuance of shares                                        1              -
----------------------------------------------------------------------------
 Balance, end of period                                2,672          2,671
----------------------------------------------------------------------------
Contributed surplus
 Balance, beginning of period                              7              -
 Share-based compensation (Note 10)                        1              -
----------------------------------------------------------------------------
 Balance, end of period                                    8              -
----------------------------------------------------------------------------
Total Shareholders' equity                       $     3,955    $     3,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS AS AT
(unaudited)
                                     March 31    December 31      January 1
($ millions)                             2011           2010           2010
----------------------------------------------------------------------------
ASSETS
 Current assets:
  Cash and cash equivalents       $       189    $        80    $       122
  Accounts receivable                     418            379            354
  Inventories                             118            129            133
  Prepaid expenses                          3              6              7
----------------------------------------------------------------------------
                                          728            594            616
 Property, plant and equipment,
  net (Note 6)                          6,396          6,395          6,265
 Exploration and evaluation                89             89             89
 Reclamation trust                         54             53             48
----------------------------------------------------------------------------
                                  $     7,267    $     7,131    $     7,018
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
 EQUITY
 Current liabilities:
  Accounts payable and accrued
   liabilities                    $       418    $       405    $       284
  Current portion of employee
   future benefits                         51             51             17
----------------------------------------------------------------------------
                                          469            456            301
 Employee future benefits and
  other liabilities                       315            316            284
 Long-term debt                         1,081          1,251          1,163
 Asset retirement obligation
  (Note 9)                               425            463            550
 Deferred taxes                         1,022            920          1,229
----------------------------------------------------------------------------
                                        3,312          3,406          3,527
 Shareholders' equity                   3,955          3,725          3,491
----------------------------------------------------------------------------
                                  $     7,267    $     7,131    $     7,018
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See Notes to Unaudited Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
                                                      Three Months Ended
                                                            March 31
($ Cdn millions)                                        2011           2010
----------------------------------------------------------------------------
Cash from (used in) operating activities
 Net income                                      $       324    $       176
 Items not requiring outlay of cash:
  Depreciation and depletion                              95            106
  Accretion of assets retirement obligation                4              5
  Foreign exchange gain on long-term debt                (25)           (34)
  Share-based compensation                                 5              -
  Deferred tax expense (recovery)                        103             (4)
 Actual reclamation expenditures (Note 9)                (29)           (23)
 Change in employee future benefits and other
  liabilities                                              1             (1)
----------------------------------------------------------------------------
                                                         478            225
 Change in non-cash working capital                      (19)           104
----------------------------------------------------------------------------
  Cash from operating activities                         459            329
----------------------------------------------------------------------------
Cash from (used in) financing activities
 Repayment of bank credit facilities                    (145)             -
 Issuance of shares                                        1              -
 Dividends                                               (97)          (170)
----------------------------------------------------------------------------
  Cash used in financing activities                     (241)          (170)
----------------------------------------------------------------------------
Cash from (used in) investing activities
 Capital expenditures                                   (109)          (112)
 Reclamation trust funding                                (2)            (1)
 Change in non-cash working capital                        2              7
----------------------------------------------------------------------------
  Cash used in investing activities                     (109)          (106)
----------------------------------------------------------------------------
Increase in cash and cash equivalents                    109             53
Cash and cash equivalents at beginning of
 period                                                   80            122
----------------------------------------------------------------------------
Cash and cash equivalents at end of period       $       189    $       175
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents consist of:
 Cash                                            $        29    $        16
 Short-term investments                                  160            159
----------------------------------------------------------------------------
                                                 $       189    $       175
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplementary Information (Note 13)
See Notes to Unaudited Consolidated Financial Statements

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011

(Tabular amounts expressed in millions of Canadian dollars, except where otherwise noted.)

1) NATURE OF OPERATIONS

Canadian Oil Sands Limited (the "Corporation") indirectly owns a 36.74 per cent interest ("Working Interest") in the Syncrude Joint Venture ("Syncrude"). Syncrude is involved in the mining and upgrading of bitumen from oil sands in Northern Alberta and is operated by Syncrude Canada Ltd. ("Syncrude Canada").

2) BASIS OF PRESENTATION

The interim unaudited consolidated financial statements reflect the December 31, 2010 reorganization from an income trust into a corporate structure pursuant to which all outstanding trust units of Canadian Oil Sands Trust (the "Trust") were exchanged on a one-for-one basis for common shares ("Shares") of the Corporation (the "Corporate Conversion"). The financial information of Canadian Oil Sands refers to common shares or Shares, Shareholders and dividends, which were formerly referred to as Units, Unitholders and distributions under the trust structure.

These consolidated financial statements are prepared and reported in Canadian dollars in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). Canadian GAAP has been revised to incorporate International Financial Reporting Standards ("IFRS") and publicly accountable enterprises are required to apply such standards for years beginning on or after January 1, 2011. Accordingly, the Corporation has commenced reporting on this basis in these interim unaudited consolidated financial statements. In these financial statements, the term "Canadian GAAP" refers to Canadian GAAP before the adoption of IFRS.

These financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting and IFRS 1 First-time adoption of IFRS. Subject to certain transition exemptions and exceptions disclosed in Note 5, the Corporation has applied IFRS compliant accounting policies to its transition date balance sheet at January 1, 2010 and throughout 2010 and the first quarter of 2011 as if these policies had always been in effect. Note 5 discloses the impact of the transition to IFRS on the Corporation's reported financial position, income and cash flows, including the nature and effect of changes in accounting policies from those used in the Corporation's Canadian GAAP consolidated financial statements for the year ended December 31, 2010.

The accounting policies applied in these interim unaudited consolidated financial statements are based on IFRS issued and outstanding as of April 28, 2011. Any subsequent changes to IFRS that are given effect in the Corporation's annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these interim consolidated financial statements, including the adjustments recognized on transition to IFRS.

Certain disclosures that are normally required to be included in the notes to the annual audited consolidated financial statements have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with the Corporation's Canadian GAAP audited consolidated financial statements and notes thereto in the Corporation's annual report for the year ended December 31, 2010.

3) SUMMARY OF ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Corporation and its subsidiaries and partnerships (collectively "Canadian Oil Sands"). The activities of Syncrude are conducted jointly with others and, accordingly, these financial statements reflect only Canadian Oil Sands' proportionate interest in such activities, which include the production, Crown royalties, operating expenses, and non-production expenses, as well as a proportionate interest in Syncrude's property, plant and equipment, inventories, employee future benefits and other liabilities, asset retirement obligation, and associated accounts payable and receivable. Substantially all operations of Canadian Oil Sands are carried out through Syncrude.

Cash and Cash Equivalents

Investments with maturities of less than 90 days at purchase are considered to be cash equivalents and are recorded at cost, which approximates fair value.

Property, Plant and Equipment

Property, plant and equipment ("PP&E") are recorded at cost and include the costs of acquiring the Working Interest in, and costs that are directly related to the acquisition, development and construction of oil sands projects, including the cost of initial overburden removal, major turnaround costs, certain interest costs, and reclamation costs associated with the asset retirement obligation. Repairs and maintenance, non-major turnaround costs and ongoing overburden removal on producing oil sands mines are expensed as operating expenses in the period incurred.

PP&E is depreciated on a straight-line basis over the estimated useful lives of the assets, with the exception of intangible mine development costs, which are depleted on a unit-of-production basis over the estimated proved and probable reserves of the producing mines. The following estimated useful lives of the tangible assets are reviewed annually for any changes to those estimates:

----------------------------------------------------------------------------
Vehicles and equipment         5 to 20 years
----------------------------------------------------------------------------
Mining equipment               Lesser of 25 years and the remaining life of
                                the mine
----------------------------------------------------------------------------
Upgrading and extraction       25 years
----------------------------------------------------------------------------
Buildings                      20 to 40 years
----------------------------------------------------------------------------
Major turnarounds              2 to 3 years
----------------------------------------------------------------------------

Capitalized major turnaround costs are depreciated over the estimated period to the next turnaround.

Assets under construction are capitalized as construction in progress. Construction in progress is not depreciated. On completion, the cost of construction in progress is transferred to the appropriate category of PP&E.

Exploration and evaluation

Exploration and evaluation ("E&E") assets include the costs of acquiring undeveloped oil sands leases ("oil sands lease acquisition costs") and interests in natural gas licenses located in the Arctic Islands in Northern Canada (the "Arctic natural gas assets").

Impairment

The carrying amounts of PP&E and E&E assets are reviewed for possible impairment whenever changes in circumstances indicate that the carrying amounts may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash inflows ("cash generating units" or "CGUs"). The recoverable amount is the higher of a CGU's fair value less cost to sell (being the amount obtainable from the sale of a CGU in an arm's length transaction, net of disposal costs) and its value in use (being the net present value of the CGU's expected future cash flows). An impairment loss is recognized for the amount by which the carrying amount exceeds the recoverable amount.

E&E assets are also subject to impairment testing at the time they are transferred to PP&E.

PP&E consists entirely of Canadian Oil Sands' proportionate interest in Syncrude's PP&E. PP&E is combined with the oil sands lease acquisition costs, within the E&E assets, to form one CGU for impairment testing purposes. The balance of the E&E assets, being the Arctic natural gas assets, form a second CGU and are tested for impairment separately from the oil sands assets.

Impairments are reversed, net of imputed depreciation and depletion, if the reversal can be related objectively to an event occurring after the impairment charge was recognized. Impairment charges and reversals are recorded as depreciation and depletion.

Interest Costs

Interest costs attributable to the acquisition or construction of qualifying assets which require a substantial period time to prepare for their intended use are capitalized as PP&E. All other interest costs are recognized as net finance expense in the period in which they are incurred.

Inventories

Inventories, which include crude oil and materials and supplies, are valued at the lower of average cost and their net realizable value.

Asset Retirement Obligation

The estimated fair value of Canadian Oil Sands' share of Syncrude's asset retirement obligation is recognized on the Consolidated Balance Sheets. Syncrude's asset retirement obligation, or reclamation obligation, relates to the site restoration of each mine site and the decommissioning of utilities plants, bitumen extraction plants, and upgrading complex. The discounted amount of the future reclamation payments is recorded upon initial land disturbance or when a reasonable estimate of the fair value of the reclamation expenditures can be determined. The fair value is determined by estimating the timing and amounts of the future reclamation expenditures, and discounting the expenditures using a risk-free interest rate. The cost of the asset retirement obligation is capitalized as PP&E and depreciated over the remaining life of the associated mine or plant.

The fair value of the asset retirement obligation is re-measured at each reporting date using the risk-free interest rate in effect at that time and changes in the fair value are capitalized as PP&E.

The asset retirement obligation is accreted using the risk-free interest rate and the accretion expense is included in net finance expense on the Consolidated Statements of Income and Comprehensive Income. Actual reclamation expenditures are charged against the asset retirement obligation when incurred.

Revenue Recognition

Sales include sales of synthetic crude oil, including both produced and purchased volumes, sales of other products, and proceeds from insurance. Sales from the sale of synthetic crude oil and other products are recorded when title passes from Canadian Oil Sands to a third party. Revenues are net of Crown royalties and include gains and losses, if any, from crude oil hedge contracts designated as hedges for accounting purposes. Sales are presented before Crown royalties.

Employee Future Benefits

Canadian Oil Sands accrues its proportionate share of obligations as a joint venture owner in respect of Syncrude Canada's post-employment benefit obligations, which include a defined benefit pension plan, two defined contribution pension plans, and a defined benefit other post-employment benefits ("OPEB") plan which provides certain health care and life insurance benefits for retirees, their beneficiaries and covered dependents.

The cost of the defined benefit pension plan and OPEB plan is actuarially determined using the projected unit credit method based on length of service and reflects Syncrude's best estimate of the expected performance of the plan investment, salary escalation factors, retirement ages of employees and future health care costs. The discount rate used to determine the accrued benefit obligation is based on a market rate of interest for high-quality corporate debt instruments with cash flows that match the timing and amount of expected benefit payments. The expected return on plan assets is based on the fair value of those assets. Actuarial gains and losses, net of income taxes, are recognized immediately in other comprehensive income. The current service cost of the defined benefit plans is recognized in operating expenses as the service is rendered. Any past service costs arising from plan amendments are recognized immediately in operating expenses.

The cost of the defined contribution plans is recognized in operating expenses as the service is rendered and contributions become payable.

Taxes

Taxes are recognized in net income, except where they relate to items recognized directly in other comprehensive income or shareholders' equity, in which case the related taxes are recognized in other comprehensive income or shareholders' equity.

Current taxes receivable or payable are estimated on taxable income for the current year at the statutory tax rates enacted or substantively enacted.

Deferred tax assets and liabilities are recognized based on the differences between the tax and accounting values of assets and liabilities, referred to as temporary differences, and are calculated using enacted or substantively enacted tax rates for the periods in which the temporary differences are expected to reverse. The effect of tax rate changes is recognized in net income, other comprehensive income or shareholders' equity, as the case may be, in the period of substantive enactment. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized.

Share-Based Compensation

Canadian Oil Sands recognizes share-based compensation expense in its Consolidated Statements of Income and Comprehensive Income for all options granted with a corresponding increase to contributed surplus in Shareholders' Equity. Canadian Oil Sands determines the compensation cost based on the estimated fair values of the options at the time of grant, which is then recognized in net income over the vesting periods of the options.

Canadian Oil Sands also recognizes share-based compensation expense related to its performance units ("PSUs"), which are awards granted to Canadian Oil Sands' officers and other select employees. Canadian Oil Sands determines compensation expense based on the estimated fair values of the PSUs, which is recognized in net income over the vesting periods of the units. Changes in the fair values of the performance units over the vesting period are recorded in net income in the period the change occurs.

As an owner in Syncrude, Canadian Oil Sands accrues its share of amounts payable for Syncrude Canada's share-based compensation programs with a corresponding increase or decrease in operating expenses. Syncrude Canada's programs include an Incentive Phantom Share Units Plan ("Phantom Units") and an Incentive Restricted Share Units Plan ("Restricted Units"), both of which require settlement by cash payments. The Phantom Units' and the Restricted Units' fair values are based on a weighted-average of the price of certain Syncrude owners' shares at the time of issue. Compensation expense for the Phantom Units and Restricted Units is recognized in net income over the shorter of the normal vesting period and the period to eligible retirement if vesting is accelerated on retirement. The changes in the fair values of the Phantom Units and Restricted Units over the vesting periods are recognized in net income in the period the change occurs.

Foreign Currency Translation

The principal currency of the economic environment in which the Corporation and its subsidiaries and wholly owned partnerships operate is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at exchange rates in effect at the end of the period, with the resulting gain or loss recorded in the Consolidated Statements of Income and Comprehensive Income. Revenues and expenses are translated into Canadian dollars at average exchange rates. Translation gains and losses on U.S. dollar denominated long-term debt are unrealized until repayment of the debt obligations. All other translation gains and losses are classified as realized.

Net Income per Share

The Corporation calculates basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated by adjusting the weighted average number of common shares outstanding for dilutive common shares related to the Corporation's share-based compensation plans. The number of shares included is computed using the treasury stock method, which assumes that proceeds received from the exercise of in-the-money options are used to repurchase common shares at the average market price.

Dividends

Dividends on common shares are recognized in the period in which the dividends are approved by the Corporation's Board of Directors.

Financial Instruments

All financial instruments are initially measured at fair value on the Consolidated Balance Sheets. Subsequent measurement of financial instruments is based on their classification as follows:

Classification             Measurement
Held for trading           Fair value with changes recognized in net income
Held to maturity           Amortized cost using effective interest method
Loans and receivables      Amortized cost using effective interest method
Available for sale         Fair value with changes recognized in other
                            comprehensive income
Other liabilities          Amortized cost using effective interest method

Transaction costs in respect of financial instruments measured at fair value are recognized immediately in net income. Transaction costs in respect of other financial instruments are included in the initial cost and amortized accordingly using the effective interest method.

The inputs to fair value measurements of financial instruments, including their classification within a hierarchy that prioritizes the inputs to fair value measurement, are as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities;

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: Inputs for the asset or liability that are not based on observable market data.

4) CRITICAL ACCOUNTING ESTIMATES

A critical accounting estimate is considered to be one that requires assumptions be made about matters that are uncertain at the time the accounting estimate is made and would have a material impact on the financial results if different assumptions were used. Canadian Oil Sands makes numerous estimates in its financial results in order to provide timely information to users. The following estimates are, however, considered critical:

a) Canadian Oil Sands records an asset retirement obligation liability and capitalizes the costs of the obligation as PP&E based on the estimated discounted fair value of its share of Syncrude's future payments required for the restoration of each of Syncrude's mine sites that have been disturbed and for the decommissioning of Syncrude's utilities plants, bitumen extraction plants, and upgrading complex. Syncrude is required to reclaim disturbed areas to a sustainable landscape with productivity that is equal or greater than existed prior to development. In determining the fair value, Canadian Oil Sands must estimate the amount of the future cash payments, the timing of when those payments will be required, and then apply an appropriate risk-free interest rate. Given the long reserve life of Syncrude's leases, the reclamation payments will be made over approximately the next 70 years, and it is difficult to estimate the timing and amount of the payments that will be required as they occur far into the future.

Any changes in the anticipated timing or the amount of the payments or to the risk free interest rate subsequent to the initial obligation being recorded results in a change to the asset retirement obligation and corresponding PP&E. Such changes will impact the accretion of the obligation and the depreciation or depletion of the PP&E and will correspondingly impact net income.

Canadian Oil Sands' asset retirement obligation was $462 million at March 31, 2011 (December 31, 2010 - $500 million) (see Note 9).

b) Canadian Oil Sands accrues its obligations for Syncrude Canada's post-employment benefits using actuarial and other assumptions to estimate the projected benefit obligation, the return on plan assets and the expense related to the current period. The basic assumptions utilized are outlined in Note 10(a) to the December 31, 2010 audited Consolidated Financial Statements. Changes in these assumptions give rise to actuarial gains and losses which are recognized immediately in other comprehensive income as incurred. The projected benefit obligation is measured using the estimated discounted fair value of the Canadian Oil Sands' share of future payments under Syncrude Canada's post-employment benefits plans. A 0.25 per cent change in the interest rate used to discount the projected benefit obligation would result in an approximate increase/decrease of $25 million in Canadian Oil Sands' share of the employee future benefits liability.

In addition, actual payments related to Syncrude Canada's post-employment benefits plans could vary greatly from estimates assumed in the projected benefit obligation and the plan assets, resulting in actuarial gains and losses.

Canadian Oil Sands does not have a post-employment benefits plan for its own employees. Therefore, all of the employee future benefits liabilities and expenditures relate to its Working Interest in Syncrude Canada's post-employment benefits plans. Canadian Oil Sands' liability for employee future benefits was $315 million at March 31, 2011 (December 31, 2010 - $327 million).

c) Canadian Oil Sands calculates depreciation expense for certain tangible oil sands assets on a straight-line basis. As such, Canadian Oil Sands must estimate the useful lives of these assets. While these useful life estimates are reviewed on a regular basis and depreciation calculations are revised accordingly, actual lives may differ from the estimates. As such, assets may continue in use after being fully depreciated, or may be retired or disposed of before being fully depreciated. The latter could result in additional depreciation expense in the period of disposition.

d) Canadian Oil Sands must estimate the reserves it expects to recover in the future and the related net revenues expected to be generated from producing those reserves. Reserves and future net revenues are evaluated and reported in a reserve report prepared by independent petroleum reserve evaluators who determine these evaluations using various factors and assumptions, such as: forecasts of mining and extraction recovery and upgrading yield based on geological and engineering data, projected future rates of production, projected operating costs, Crown royalties and taxes, projected crude oil prices and oil price differentials and timing and amounts of future capital expenditures and other development costs, all of which are estimates. The factors and assumptions used in the estimates are assessed for reasonableness based on the information available at the time that the estimates are prepared. Estimates of reserves and future net revenues are critical to asset impairment tests. In addition, for certain intangible assets, which are depleted on a unit-of-production basis, reserves are used as a component of the depletion calculations to allocate capital costs over their estimated useful lives. The reserve report is reviewed by Canadian Oil Sands' management, the Reserves, Marketing Operations and Environmental, Health and Safety Committee and the Board of Directors.

As circumstances change and new information becomes available, the reserve report data could change. Future actual results could vary greatly from our estimates, and could cause changes in our asset impairment tests or depletion estimates, both of which use the reserves and/or future net revenues in their respective calculations.

e) Accounting for income taxes is a complex process that requires the Corporation to interpret frequently changing laws and regulations, including changing income tax rates, and make certain judgments with respect to the application of tax law, estimating the timing of temporary difference reversals, and estimating the realizability of tax assets. Therefore, income taxes are subject to measurement uncertainty. Canadian Oil Sands' liability for deferred taxes was 1,022 million at March 31, 2011 (December 31, 2010 - $920 million).

5) TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
The impact of the transition to IFRS is summarized in this note as follows:
  a) Transition Exceptions and Exemptions
  b) Reconciliation of Assets, Liabilities and Shareholders' Equity as
     previously reported under Canadian GAAP to IFRS
  c) Reconciliation of Net Income and Comprehensive Income as previously
     reported under Canadian GAAP to IFRS
  d) Reconciliation of Cash Flows as previously reported under Canadian 
     GAAP to IFRS
  e) Notes to the reconciliations
a) Transition Exceptions and Exemptions
Canadian Oil Sands has applied the following transition exceptions and
exemptions to full retrospective application of IFRS:
                                                                         As
Exception          Description                                    described
 / exemption                                                   in Note 5 (e)
----------------------------------------------------------------------------
Capitalization of  Exempt all interest costs incurred prior to          (ii)
 interest costs    January 1, 2010 from capitalization
----------------------------------------------------------------------------
Asset retirement   Apply prescribed method to estimate                 (iii)
 obligation        January 1, 2010 net book value of asset
                   retirement obligation's cost capitalized in
                   PP&E
----------------------------------------------------------------------------
Employee future    Record previously unrecognized actuarial             (iv)
 benefits          losses on defined benefit pension plan
                   through January 1, 2010 retained earnings
----------------------------------------------------------------------------
Business           Exempt pre-January 1, 2010 business
 combinations      combinations from re-measurement
----------------------------------------------------------------------------
Leases             Exempt all leases assessed under
                   Canadian GAAP from re-assessment
b) Reconciliations of Assets, Liabilities and Shareholders' Equity as
previously reported under Canadian GAAP to IFRS
                                      December 31     March 31    January 1
($ millions)                    Note         2010         2010         2010
----------------------------------------------------------------------------
Assets as reported under
 Canadian GAAP                           $  7,016     $  6,983     $  6,953
 Property, plant and equipment
  as reported under Canadian
  GAAP                                   $  6,369     $  6,284     $  6,289
  Capitalization of turnaround
   costs                          (i)          51           51           46
  Capitalization of interest
   costs                         (ii)          30            6            -
  Asset retirement obligation   (iii)          34           18           19
  Reclass to exploration and
   evaluation                  (viii)         (89)         (89)         (89)
                                     ---------------------------------------
 Property, plant and equipment
  as reported under IFRS                 $  6,395     $  6,270     $  6,265
 Exploration and evaluation as
  reported under Canadian GAAP           $      -     $      -     $      -
  Reclass from property, plant
   and equipment               (viii)          89           89           89
                                     ---------------------------------------
 Exploration and evaluation as
  reported under IFRS                    $     89     $     89     $     89
                                     ---------------------------------------
Assets as reported under IFRS            $  7,131     $  7,058     $  7,018
                                     ---------------------------------------
                                     ---------------------------------------
Liabilities as reported under
 Canadian GAAP                           $ (3,058)    $ (3,017)    $ (2,984)
 Employee future benefits and
  other liabilities as reported
  under Canadian GAAP                    $    (67)    $   (103)    $   (104)
  Defined benefit pension plan   (iv)        (240)        (164)        (166)
  Cash settled share-based
   awards                         (v)           -           (8)          (7)
  Equity settled share-based
   awards                        (vi)          (9)          (8)          (7)
                                     ---------------------------------------
 Employee future benefits and
  other liabilities as reported
  under IFRS                                 (316)        (283)        (284)
 Asset retirement obligation
  as reported under Canadian
  GAAP                                   $   (286)    $   (372)    $   (389)
  Asset retirement obligation   (iii)        (177)        (160)        (161)
                                     ---------------------------------------
 Asset retirement obligation
  as reported under IFRS                 $   (463)    $   (532)    $   (550)
 Deferred taxes as reported
  under Canadian GAAP                    $   (998)    $ (1,020)    $ (1,027)
  Deferred taxes                (vii)          78         (204)        (201)
                                     ---------------------------------------
 Deferred taxes as reported
  under IFRS                             $   (920)    $ (1,224)    $ (1,228)
                                     ---------------------------------------
Liabilities as reported under
 IFRS                                    $ (3,406)    $ (3,561)    $ (3,526)
                                     ---------------------------------------
                                     ---------------------------------------
Shareholders' equity as
 reported under Canadian GAAP            $ (3,958)    $ (3,966)    $ (3,969)
 Retained earnings as reported
  under Canadian GAAP                    $ (1,349)    $ (1,356)    $ (1,359)
  Capitalization of turnaround
   costs                          (i)         (51)         (51)         (46)
  Capitalization of interest
   costs                         (ii)         (30)          (6)           -
  Asset retirement obligation   (iii)         143          142          142
  Defined benefit pension plan   (iv)         240          164          166
  Cash settled share-based
   awards                         (v)           9            8            7
  Reclass equity-settled
   share-based awards            (vi)          84           84           84
  Equity-settled share-based
   awards                        (vi)           -            2            2
  Deferred taxes                (vii)         (78)         204          201
                                     ---------------------------------------
                                     ---------------------------------------
 Retained earnings as reported
  under IFRS                             $ (1,032)    $   (809)    $   (803)
 Shareholders' capital as
  reported under Canadian GAAP           $ (2,587)    $ (2,587)    $ (2,587)
  Reclass equity-settled
   share-based awards            (vi)         (84)         (84)         (84)
                                     ---------------------------------------
                                     ---------------------------------------
 Shareholders' capital as
  reported under IFRS                    $ (2,671)    $ (2,671)    $ (2,671)
 Contributed surplus as
  reported under Canadian GAAP           $     (7)    $     (6)    $     (5)
  Equity-settled share-based
   awards                        (vi)           -            6            5
                                     ---------------------------------------
 Contributed surplus as
  reported under IFRS                    $     (7)    $      -     $      -
                                     ---------------------------------------
Shareholders' equity as
 reported under IFRS                     $ (3,725)    $ (3,497)    $ (3,492)
                                     ---------------------------------------
                                     ---------------------------------------
c) Reconciliations of Net Income and Comprehensive Income as previously
reported under Canadian GAAP to IFRS
                                                               Three Months
                                                   Year Ended         Ended
                                                  December 31      March 31
($ millions)                               Note          2010          2010
----------------------------------------------------------------------------
Operating expenses as reported under
 Canadian GAAP                                      $  (1,439)     $   (354)
 Capitalization of turnaround costs          (i)           46            14
 Actuarial losses on defined benefit
  pension plan                              (iv)            9             2
 Cash settled share-based awards             (v)           (2)           (1)
                                                ----------------------------
Operating expenses as reported under IFRS           $  (1,386)     $   (339)
Depreciation and depletion expense as
 reported under Canadian GAAP                       $    (408)     $   (103)
 Capitalization of turnaround costs          (i)          (40)           (8)
 Increase in depletion of asset retirement
  obligation's cost                                        (6)           (1)
 Reclass accretion of asset retirement
  obligation to net finance expense          (x)           25             6
                                                ----------------------------
Depreciation and depletion expense as
 reported under IFRS                                $    (429)     $   (106)
Interest expense as reported under
 Canadian GAAP                                      $     (91)     $    (26)
 Capitalization of interest costs           (ii)           30             6
 Decrease in accretion of asset retirement
  obligation                                                4             1
 Reclass accretion of asset retirement
  obligation from depreciation and depletion
  expense                                    (x)          (25)           (6)
                                                ----------------------------
Net finance expense as reported under IFRS          $     (82)     $    (25)
Administration expense as reported under
 Canadian GAAP                                      $     (23)     $     (8)
 Equity settled share-based awards          (vi)            2            (1)
                                                ----------------------------
Administration expense as reported under
 IFRS                                               $     (21)     $     (9)
Deferred tax recovery as reported under
 Canadian GAAP                                      $      29      $      7
 Deferred taxes                            (vii)          259            (3)
                                                ----------------------------
Deferred tax recovery as reported under
 IFRS                                               $     288      $      4
Net income as reported under Canadian GAAP          $     886      $    167
 Sum of adjustments above                                 302             9
                                                ----------------------------
Net income as reported under IFRS                   $   1,188      $    176
                                                ----------------------------
                                                ----------------------------
Other comprehensive loss as reported under
 Canadian GAAP                                      $      (3)     $     (1)
 Actuarial losses on defined benefit
  pension plan                              (iv)          (62)            -
                                                ----------------------------
Other comprehensive loss as reported under
 IFRS                                               $     (65)     $     (1)
Comprehensive income as reported under
 Canadian GAAP                                      $     883      $    166
 Sum of adjustments above                                 240             9
                                                ----------------------------
Comprehensive income as reported under
 IFRS                                               $   1,123      $    175
                                                ----------------------------
                                                ----------------------------
d) Reconciliation of Cash Flows as previously reported under Canadian GAAP
to IFRS
                                                               Three Months
                                                   Year ended         Ended
                                                  December 31      March 31
 ($ millions)                               Note          2010          2010
----------------------------------------------------------------------------
Cash from operating activities as reported
 under Canadian GAAP                                $   1,219      $    309
 Capitalization of turnaround costs          (i)           46            14
 Capitalization of interest costs           (ii)           30             6
                                                ----------------------------
Cash from operating activities as reported
 under IFRS                                         $   1,295      $    329
                                                ----------------------------
                                                ----------------------------
Cash used in investing activities as
 reported under Canadian GAAP                       $    (510)     $    (86)
 Capitalization of turnaround costs          (i)          (46)          (14)
 Capitalization of interest costs           (ii)          (30)           (6)
                                                ----------------------------
Cash used in investing activities as
 reported under IFRS                                $    (586)     $   (106)
                                                ----------------------------
                                                ----------------------------

e) Notes to the reconciliations

i) Capitalization of turnaround costs

Under Canadian GAAP, turnaround costs were expensed as operating expenses as incurred. Under IFRS, costs of major turnarounds are capitalized as property, plant, and equipment and depreciated over the period until the next turnaround, which typically ranges from 24 to 30 months.

January 1, 2010 transition adjustments

An adjustment was recorded at January 1, 2010 to capitalize turnaround costs expensed under Canadian GAAP. This adjustment resulted in a $46 million increase in property, plant and equipment, net of $48 million accumulated depreciation, with a corresponding $46 million increase in retained earnings.

2010 adjustments

For the three months ended March 31, 2010, the capitalization of turnaround costs under IFRS resulted in a $14 million decrease in operating expenses and an $8 million increase in depreciation and depletion. Expenditures of $14 million were reclassified from operating activities to investing activities in the statement of cash flows. March 31, 2010 property, plant and equipment, net of accumulated depreciation, and retained earnings were each $51 million higher as a result of capitalizing turnaround costs.

For the year ended December 31, 2010, the capitalization of turnaround costs under IFRS resulted in a $46 million decrease in operating expenses and a $40 million increase in depreciation and depletion. Expenditures of $46 million were reclassified from operating activities to investing activities in the statement of cash flows. December 31, 2010 property, plant and equipment, net of accumulated depreciation, and retained earnings were each $51 million higher as a result of capitalizing turnaround costs.

ii) Capitalization of interest costs

Under Canadian GAAP, all interest costs were expensed. Under IFRS, interest costs relating to qualifying assets that take a substantial period of time to construct are capitalized and subsequently expensed as depreciation over the assets' expected useful lives.

January 1, 2010 transition adjustments

Canadian Oil Sands has applied the transition election available under IFRS 1 to exempt all interest costs incurred prior to January 1, 2010 from capitalization. As such, there is no adjustment at January 1, 2010.

2010 adjustments

For the three months ended March 31, 2010, the capitalization of interest costs under IFRS resulted in a $6 million decrease in interest expense with a corresponding increase in property, plant and equipment. Expenditures of $6 million were reclassified from operating activities to investing activities in the statement of cash flows.

For the year ended December 31, 2010, the capitalization of interest costs under IFRS resulted in a $30 million decrease in interest expense with a corresponding increase in property, plant and equipment. Expenditures of $30 million were reclassified from operating activities to investing activities in the statement of cash flows.

iii) Asset retirement obligation

Under Canadian GAAP, the asset retirement obligation was measured, when initially recognized, using a credit-adjusted discount rate and was not re-measured for changes to this rate. Under IFRS, the asset retirement obligation is measured, when initially recognized, using a risk free discount rate and is re-measured at each reporting date for changes to this rate.

January 1, 2010 transition adjustments

Canadian Oil Sands has applied the transition election available under IFRS 1 to estimate the January 1, 2010 net book value of the asset retirement obligation's cost capitalized in property, plant and equipment.

An adjustment was recorded at January 1, 2010 to re-measure the asset retirement obligation using a risk free discount rate and to recognize the impact of applying the IFRS 1 election. The combined effect was a $161 million increase in the asset retirement obligation and a $19 million increase in property, plant, and equipment, with a corresponding $142 million decrease in retained earnings.

2010 adjustments

The risk free discount rate was unchanged from January 1, 2010 to March 31, 2010. As such, the asset retirement obligation and related property, plant and equipment were not re-measured. At March 31, 2010, the asset retirement obligation was $160 million higher and the related property, plant and equipment asset was $18 million higher mainly as a result of the January 1, 2010 transition adjustments.

The risk free discount rate was higher at December 31, 2010 than at March 31, 2010 and the asset retirement obligation and related property, plant and equipment were re-measured. At December 31, 2010, the asset retirement obligation was $177 million higher and the related property, plant and equipment asset was $34 million higher mainly as a result of the January 1, 2010 transition adjustments and December 31, 2010 re-measurement.

iv) Actuarial losses on defined benefit pension plan

Under Canadian GAAP, Canadian Oil Sands recognized its proportionate share of actuarial gains and losses on Syncrude Canada's defined benefit pension plan using the corridor method whereby the excess of any net actuarial gain or loss exceeding 10 per cent of the greater of the benefit obligation or fair value of plan assets was amortized over the estimated average remaining service life of employees. Under IFRS, these actuarial gains and losses are immediately recognized as incurred in other comprehensive income.

January 1, 2010 transition adjustments

Canadian Oil Sands has applied the transition election available under IFRS 1 to recognize previously unrecognized actuarial losses through January 1, 2010 retained earnings. This resulted in a $166 million increase in employee future benefits and accrued liabilities with a corresponding $166 million decrease in retained earnings.

2010 adjustments

At March 31, 2010, employee future benefits and accrued liabilities were $164 million higher while retained earnings were $164 million lower, mainly as a result of the January 1, 2010 transition adjustments.

Actuarial losses of $62 million, net of $20 million in deferred taxes, were immediately recognized in other comprehensive income during year ended December 31, 2010 while $9 million of operating expenses relating to the amortization of these costs under Canadian GAAP were removed.

At December 31, 2010, employee future benefits and accrued liabilities were $240 million higher while retained earnings were $240 million lower as a result of these IFRS adjustments.

v) Cash-settled share-based awards

Under Canadian GAAP, cash-settled share-based awards were measured at each reporting date at their intrinsic value. Under IFRS, cash-settled share-based awards are measured at fair value. The cash-settled share-based awards include Canadian Oil Sands' proportionate share of Syncrude Canada's Restricted Units and Phantom Units and Canadian Oil Sands' PSUs.

vi) Equity-settled share-based awards

Under Canadian GAAP, options were classified as equity-settled share-based awards while Canadian Oil Sands operated as a trust. Share-based compensation expense was measured using the grant date fair value and amortized over the vesting period of the options with a corresponding charge to contributed surplus. When options were exercised, amounts in contributed surplus were reclassified to share capital.

Under IFRS, these options are not recognized as equity-settled share-based awards until the December 31, 2010 conversion to a corporation. Prior to this, options are re-measured at fair value at each reporting date. While share-based compensation expense is still amortized over the vesting period of the options, this charge is recorded as a liability, rather than to contributed surplus, under IFRS. However, when options are exercised, liabilities are still reclassified to shareholders' capital.

Upon conversion to a corporation on December 31, 2010, the options are classified under IFRS as equity-settled share-based awards and future share-based compensation expense is measured using the December 31, 2010 fair value amortized over the remaining vesting periods of the options.

January 1, 2010 transition adjustments

An adjustment was recorded at January 1, 2010 to recognize the additional share-based compensation expense relating to all previously settled options resulting in an $84 million increase in shareholders' capital with a corresponding $84 million decrease in retained earnings.

vii) Deferred taxes

Under Canadian GAAP, deferred taxes were referred to as future income taxes and were measured by applying the 25 per cent corporate tax rate, applicable to earnings distributed to trust unitholders, to temporary differences. While Canadian Oil Sands was structured as an income trust, IFRS required that deferred taxes be measured using the using the 39 per cent individual tax rate applicable to earnings not distributed to trust unitholders. At December 31, 2010, after the conversion to a corporation, deferred taxes are measured at the 25 per cent corporate tax rate under IFRS, resulting in the recognition of a deferred tax recovery.

January 1, 2010 transition adjustments

An adjustment was recorded at January 1, 2010 to recognize a $269 million increase in the deferred taxes liability with a corresponding $269 million decrease in retained earnings. The adjustment was reversed on December 31, 2010 resulting in a $269 million deferred tax recovery during the year ended December 31, 2010.

The tax impact of the combined January 1, 2010 transition adjustments resulted in a $201 million increase in the deferred tax liability and a corresponding $201 million decrease in retained earnings.

2010 adjustments

The March 31, 2010 deferred tax liability increased by $204 million and retained earnings decreased by $204 million mainly as a result of the transition adjustments.

For the year ended December 31, 2010, a deferred tax recovery adjustment of $259 million was recorded mainly as a result of the tax rate reduction from 39 per cent to 25 per cent as a result of the conversion to a corporation.

The $201 million increase in the deferred tax liability at January 1, 2010, the $259 million deferred tax recovery adjustments for the year ended December 31, 2010, and the $20 million deferred tax recovery adjustment recorded with the actuarial losses in other comprehensive income, collectively result in a $78 million decrease in the December 31, 2010 deferred tax liability and a $78 million increase in December 31, 2010 retained earnings under IFRS.

viii) Exploration and evaluation costs

Under Canadian GAAP, capitalized exploration and evaluation costs were included in property, plant, and equipment on the balance sheet. Under IFRS, capitalized exploration and evaluation costs are presented as a separate line item.

January 1, 2010 transition adjustments

An adjustment was recorded at January 1, 2010 to reclassify $89 million from property, plant, and equipment to exploration and evaluation assets.

2010 adjustments

There were no exploration and evaluation costs capitalized during the three months ended March 31, 2010, nor during the year ended December 31, 2010.

ix) Crown royalties

Under Canadian GAAP, Crown royalties were presented as expenses in the statements of income and comprehensive income. Under IFRS, Crown royalties are netted against revenues.

x) Net finance expense

Under Canadian GAAP, accretion of the asset retirement obligation was presented with depreciation and depletion in the statements of income and comprehensive income. Under IFRS, accretion is combined with interest expense and presented as finance expense. Finance expense is presented net of interest income earned on cash and cash equivalents.

6) PROPERTY, PLANT AND EQUIPMENT, NET
                     Upgrading              Vehicles                  Asset
                           and     Mining        and             retirement
                    extraction  equipment  equipment  Buildings       costs
                   ---------------------------------------------------------
Cost
As at
 December 31, 2010  $    4,669  $   1,381  $     688  $     304  $      362
Additions                    9          -          7          1           -
Change in asset
 retirement
 obligation                  -          -          -          -         (13)
Retirements                  -          -          -          -           -
Reclassifications           (1)       (12)        (1)         4           -
                   ---------------------------------------------------------
As at
 March 31, 2011     $    4,677  $   1,369  $     694  $     309  $      349
                   ---------------------------------------------------------
Accumulated
 depreciation
As at
 December 31, 2010  $    1,092  $     449  $     264  $     100  $      103
Depreciation                40         23         13          2           4
Retirements                  -          -          -          -           -
Reclassifications           (3)         5          2         (3)
                   ---------------------------------------------------------
As at
 March 31, 2011     $    1,129  $     477  $     279  $      99  $      107
                   ---------------------------------------------------------
Net book value,
 March 31, 2011     $    3,548  $     892  $     415  $     210  $      242
                   ---------------------------------------------------------
                   ---------------------------------------------------------
                            Turnaround  Construction         Mine
                                 costs   in progress  development
                                                                      Total
                           -------------------------------------------------
Cost
As at December 31, 2010       $    102 $         694  $       345  $  8,545
Additions                            -            92            -       109
Change in asset retirement
 obligation                          -             -            -       (13)
Retirements                          -             -            -         -
Reclassifications                    -             -           10         -
                           -------------------------------------------------
As at March 31, 2011          $    102 $         786  $       355  $  8,641
                           -------------------------------------------------
Accumulated depreciation
As at December 31, 2010       $     50 $           -  $        92  $  2,150
Depreciation                        10             -            3        95
Retirements                          -             -            -         -
Reclassifications                    -                         (1)        -
                           -------------------------------------------------
As at March 31, 2011          $     60 $           -  $        94  $  2,245
                           -------------------------------------------------
Net book value,
 March 31, 2011               $     42 $         786  $       261  $  6,396
                           -------------------------------------------------
                           -------------------------------------------------
                     Upgrading              Vehicles                  Asset
                           and     Mining        and             retirement
                    extraction  equipment  equipment  Buildings       costs
                   ---------------------------------------------------------
Cost
As at
 January 1, 2010    $    4,594  $   1,288  $     667  $     298  $      384
Additions                   78        126         42          7           -
Change in asset
 retirement
 obligation                  -          -          -          -         (22)
Retirements                 (3)       (33)       (21)        (1)          -
                   ---------------------------------------------------------
As at
 December 31, 2010  $    4,669  $   1,381  $     688  $     304  $      362
                   ---------------------------------------------------------
Accumulated
 depreciation
As at
 January 1, 2010    $      931  $     356  $     231  $      92  $       78
Depreciation               164        126         54          9          25
Retirements                 (3)       (33)       (21)        (1)          -
                   ---------------------------------------------------------
As at
 December 31, 2010  $    1,092  $     449  $     264  $     100  $      103
                   ---------------------------------------------------------
Net book value,
 December 31, 2010  $    3,577  $     932  $     424  $     204  $      259
                   ---------------------------------------------------------
                   ---------------------------------------------------------
                            Turnaround  Construction         Mine
                                 costs   in progress  development
                                                                      Total
                           -------------------------------------------------
Cost
As at January 1, 2010         $     94  $        439  $       323  $  8,087
Additions                           46           255           28       582
Change in asset retirement
 obligation                          -             -            -       (22)
Retirements                        (38)            -           (6)     (102)
                           -------------------------------------------------
As at December 31, 2010       $    102  $        694  $       345  $  8,545
                           -------------------------------------------------
Accumulated depreciation
As at January 1, 2010         $     48  $          -  $        87  $  1,823
Depreciation                        40             -           11       429
Retirements                        (38)            -           (6)     (102)
                           -------------------------------------------------
As at December 31, 2010       $     50  $          -  $        92  $  2,150
                           -------------------------------------------------
Net book value,
 December 31, 2010            $     52  $        694  $       253  $  6,395
                           -------------------------------------------------
                           -------------------------------------------------

For the three months ended March 31, 2011, interest costs of $11 million were capitalized and included in property, plant and equipment (March 31, 2010 - $6 million).

7) EMPLOYEE FUTURE BENEFITS AND OTHER LIABILITIES

Canadian Oil Sands' share of Syncrude Canada's net defined benefit and contribution plans expense for the three months ended March 31, 2011 and 2010 is based on its 36.74 per cent working interest. The costs have been recorded in operating expense as follows:

                                                          Three Months Ended
                                                                    March 31
                                                        2011            2010
----------------------------------------------------------------------------
Defined benefit plans:
 Pension benefits                                   $      7      $        7
 Other benefit plans                                       1               1
----------------------------------------------------------------------------
                                                    $      8      $        8
Defined contribution plans                                 1               1
----------------------------------------------------------------------------
 Total benefit cost                                 $      9      $        9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8) BANK CREDIT FACILITIES
As at March 31, 2011
----------------------------------------------------------------------------
Extendible revolving term facility (a)                                 $  40
Line of credit (b)                                                       100
Operating credit facility (c)                                            800
----------------------------------------------------------------------------
                                                                       $ 940
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The credit facilities of Canadian Oil Sands are unsecured. The credit facility agreements contain covenants relating to the restriction on Canadian Oil Sands' ability to sell all or substantially all of its assets or to change the nature of its business. In addition, Canadian Oil Sands has agreed to maintain its total debt-to-total book capitalization at an amount less than 60 per cent, or 65 per cent in certain circumstances involving acquisitions.

a) Extendible Revolving Term Facility

The $40 million extendible revolving term facility is a 364-day facility expiring June 30, 2011. This facility may be extended on an annual basis with the agreement of the bank. Amounts borrowed through this facility bear interest at a floating rate based on bankers' acceptances plus a credit spread, while any unused amounts are subject to standby fees. As at March 31, 2011, no amounts were drawn on this facility ($nil - December 31, 2010).

b) Line of Credit

The $100 million line of credit is a one-year revolving letter of credit facility. Letters of credit drawn on the facility mature April 30th each year and are automatically renewed, unless notification to cancel is provided by Canadian Oil Sands or the financial institution providing the facility at least 60 days prior to expiry. Letters of credit on this facility bear interest at a credit spread. Letters of credit of approximately $75 million have been written against the line of credit as at March 31, 2011 ($75 million - December 31, 2010).

c) Operating Credit Facility

The $800 million operating facility is a multi-year facility, expiring April 27, 2012. Amounts borrowed through this facility bear interest at a floating rate based on either prime interest rates or bankers' acceptances plus a credit spread, while any unused amounts are subject to standby fees. As at March 31, 2011, no amounts were drawn against this facility ($145 million - December 31, 2010).

9) ASSET RETIREMENT OBLIGATION

Canadian Oil Sands and each of the other Syncrude owners are liable for their share of ongoing environmental obligations related to the ultimate reclamation of the Syncrude properties on abandonment. The Corporation estimates reclamation expenditures will be made over approximately the next 70 years and has applied a risk-free interest rate of 3.5% at March 31, 2011 (December 31, 2010 - 3.35%) in deriving the asset retirement obligation.

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the Corporation's share of the obligation associated with the retirement of the Syncrude properties:

                                                Three Months     Year Ended
                                                 Ended March    December 31
($ millions)                                            2011           2010
----------------------------------------------------------------------------
Asset retirement obligation, beginning of
 period                                             $    500       $    550
Liabilities settled                                      (29)           (48)
Accretion expense                                          4             21
Change in risk-free interest rate                        (13)           (23)
----------------------------------------------------------------------------
Asset retirement obligation, end of period               462            500
Less current portion                                     (37)           (37)
----------------------------------------------------------------------------
Non-current portion                                 $    425       $    463
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10) SHARE-BASED COMPENSATION

During the first quarter of 2011, 317,512 options and 76,644 PSUs were issued by the Corporation to officers and employees pursuant to the Corporation's Long Term Incentive Plan. The options have an average exercise price of $26.78 and an estimated value of $2 million while the PSUs have an estimated value of $5 million.

11) NET FINANCE EXPENSE
                                                      Three Months Ended
                                                            March 31
($ millions)                                            2011           2010
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Interest costs                                      $     21       $     26
 Less capitalized interest                          $    (11)      $     (6)
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Interest expense                                    $     10       $     20
Accretion of asset retirement obligation                   4              5
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Net finance expense                                 $     14       $     25
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12) CONTINGENCY

Crown royalties include amounts due under the Syncrude Royalty Amending Agreement with the Alberta government. The Syncrude Royalty Amending Agreement requires that bitumen be valued by a formula that references the value of bitumen based on a Canadian heavy oil price adjusted for reasonable quality, transportation and handling deductions (including diluent costs) to reflect the quality and location differences between Syncrude's bitumen and the reference price of bitumen. The Alberta government and the Syncrude owners are in discussions to determine the appropriate adjustments for quality, transportation and handling. In December 2010, the Alberta government provided a modified notice of a bitumen value for Syncrude (the "Syncrude BVM"). For estimating and paying royalties, Syncrude used a bitumen value based on Syncrude and its owners' interpretation of the Syncrude Royalty Amending Agreement, which is different than the Syncrude BVM. As a result, Canadian Oil Sands' share of the royalties recognized for the period from January 1, 2009 to March 31, 2011 are now estimated to be approximately $35 million less than the amount calculated under the Syncrude BVM. The Syncrude owners and the Alberta government continue to discuss the basis for reasonable quality, transportation, and handling adjustments but if such discussions do not result in an agreed upon solution, either party may seek judicial determination of the matter. Should these discussions or a judicial determination result in a deemed bitumen value different than that used by Syncrude for estimating and paying royalties, the cumulative impact on Canadian Oil Sands' share of royalties since January 1, 2009 will be recognized immediately and impact both net income and cash royalties accordingly.

13) SUPPLEMENTARY INFORMATION
                                                      Three Months Ended
                                                            March 31
                                                        2011           2010
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Income tax paid                                     $      -       $      -
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Interest paid                                       $     19       $     24
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Contact Information

  • Canadian Oil Sands Limited
    TBD