Canadian Oil Sands Trust

Canadian Oil Sands Trust

December 02, 2010 20:16 ET

Canadian Oil Sands Provides 2011 Budget

CALGARY, ALBERTA--(Marketwire - Dec. 2, 2010) - Canadian Oil Sands Trust ("COS" or "Canadian Oil Sands" or "we") (TSX:COS.UN) today announced its Budget for 2011. Unless otherwise noted, all figures are based on Canadian Oil Sands' 36.74 per cent working interest in the Syncrude joint venture. All financial figures are in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") assuming a January 1, 2011 implementation of International Financial Reporting Standards ("IFRS"), unless otherwise stated.

Production Outlook

Canadian Oil Sands is budgeting annual Syncrude production of 110 million barrels (301,400 barrels per day) with a range of 102 to 115 million barrels for 2011. Net to COS, this is equivalent to 40.4 million barrels (110,700 barrels per day). The 110 million barrel single point estimate includes one planned coker turnaround in the second half of the year. The production outlook for 2011 represents a five million barrel, or approximately five per cent, increase over COS' expected 2010 production.

"We expect to see fewer unplanned outages and a progressive improvement towards our ultimate goal of consistent production at design capacity, as equipment modifications and process system changes continue to be implemented through the Management Services Agreement," said Marcel Coutu, President and Chief Executive Officer.

To date, all of Syncrude's units have demonstrated the capacity to operate at design rates for periods of time, but suboptimal run lengths between maintenance cycles have resulted in unplanned capacity losses. This has prevented the operation from producing at full, annual design capacity. A disciplined, plant-wide maintenance program supported by an engineering-based root cause analysis of all production upsets is underway. The goal is to reduce unplanned capacity losses, thereby resulting in longer, more predictable run lengths for each operating unit and eventually design capacity production rates. It is difficult to predict precisely when this will occur, so Canadian Oil Sands intends to provide only annual guidance of Syncrude's production as we progress towards this goal.

Financial Outlook

Revenues, net of crude oil purchases and transportation expense, are estimated at approximately $3.2 billion, reflecting our 40.4 million barrel production estimate and a $79 per barrel sales price. The sales price assumes an average US$80 per barrel WTI crude oil price, a US to Canadian dollar exchange rate of $0.98, and a discount to Canadian dollar WTI prices of $2.75 per barrel.

We are estimating operating costs of approximately $1.5 billion in 2011, comprised of approximately $1.3 billion in production costs and $0.2 billion in purchased energy. The purchased energy costs reflect a $4 per gigajoule ("GJ") natural gas price assumption and consumption of about one GJ per barrel of upgraded, synthetic production. Based on our production assumption, this translates into approximately $37 per barrel of operating costs, similar to our outlook for 2010.

Non-production costs are estimated to rise by approximately $30 million over our 2010 outlook to $145 million due to a higher 2011 capital program. Also mainly as a result of the higher capital program, Crown royalties are expected to be $120 million lower than our 2010 outlook, totaling about $180 million in 2011.

Capital costs are estimated to total about $930 million in 2011, comprised of $620 million of spending on major projects and $310 million in regular maintenance of the business and other projects.

Based on these inputs, COS is estimating cash from operating activities of approximately $1.3 billion, or $2.59 per share in 2011. After deducting forecast 2011 capital expenditures, we are estimating $330 million in remaining cash from operating activities for the year, or $0.68 per share.


Following our conversion from a trust to a corporation at year-end, Canadian Oil Sands intends to continue with its approach of providing a variable dividend to investors. As a trust, COS' distributions have reflected the cash that was not reinvested in the business for operations, sustaining and growth capital, and the management of net debt levels. Dividend payments will continue to reflect this approach and will be determined on a quarterly basis.

Canadian Oil Sands is targeting to maintain net debt at roughly the current level over the next few years. This should provide us with debt capacity as we enter a larger capital program later this decade to fund production expansion through the development of the Aurora South leases.

Canadian Oil Sands expects to declare its first dividend as a corporation on January 27, 2011. Based on our 2011 Budget, which among other parameters assumes an US$80 WTI price, we anticipate the dividend amount for the first quarter to be $0.20 per share.

Said Coutu: "We recognize the importance of dividends to our shareholders; moreover, we believe that building long-term value will continue to come primarily from investing in our business. As such, we will strive to internally fund our capital programs with cash from operating activities and the prudent use of debt, avoiding equity dilution from the sale of stock whenever practical. We have built an attractive business around a tremendous resource and plan to maintain our strategy of providing long-term value for our investors."

2011 Capital Investments

Canadian Oil Sands plans to spend a total of $927 million in 2011 on several multi-year projects, as follows:

-- $332 million will be invested to build a stable, more efficient
foundation for future bitumen production through the relocation or
replacement of four out of Syncrude's five mining trains. In the North
Mine, two new mining trains will be built further west. At Aurora North,
two of our three mining trains will be dismantled and moved westward.
Once completed, these four mine trains should remain in operation for 10
to 20 years. All of these mine trains moves are necessary to vacate
depleted pits to allow tailings placement and to shorten the haul
distance for our mining trucks. This activity is not expected to impact
-- $114 million to complete the Syncrude Emissions Reduction (SER) project.
This environmental project is expected to be completed in 2011 at a
total cost of $1.6 billion to Syncrude. 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.
-- $176 million for tailings management initiatives. This investment is in
accordance with Syncrude's plan submitted to the Alberta government
under the new Tailings Directive 074.
-- The remaining $305 million will be directed towards regular maintenance
of the business and other smaller capital projects.

"Our 2011 capital program reflects the investments Syncrude is making to improve environmental performance and provide a sound foundation for operations over the next decade and a half, thereby maintaining Syncrude's status as a leader in growing sustainable oil sands production," said Coutu. "Along with these investments, we still expect to maintain our strong balance sheet and provide dividends to our investors with little or no equity financing, reflecting the benefit of our large production base."

2011 Budget Summary

Key Operating Assumptions (millions of Canadian dollars, except volume and
per barrel amounts) (1)
Syncrude production (million bbls) 110.0
Canadian Oil Sands sales (million bbls) 40.4
Revenues, net of crude oil purchases
and transportation 3,188
Operating costs 1,487
Operating costs per barrel 36.79
Crown royalties 181
Cash from operating activities 1,256

Capital Program (Net to Canadian Oil Sands)

Major projects
Mine train relocations/replacements 332
Tailings management 176
Syncrude Emissions Reduction project 114
Maintenance of business/other 305
Total capital expenditures 927

Business Environment Assumptions
West Texas Intermediate (US$/bbl) $ 80.00
Premium (Discount) to average Cdn$ WTI
prices (Cdn$/bbl) $ (2.75)
Foreign exchange rate (US$/Cdn$) $ 0.980
AECO natural gas (Cdn$/GJ) $ 4.00

(1) References to 2010 are to Canadian GAAP pre-IFRS while references to
2011 assume GAAP under IFRS. See the Trust's third quarter results for
an explanation of anticipated changes under IFRS.

The 2011 budget can be impacted by a variety of factors. Some of the more significant variables include, without limitation:

-- Crude oil prices: Canadian Oil Sands' 2011 production is currently
unhedged. Accordingly, COS' cash from operating activities is highly
sensitive to changes in crude oil prices and foreign exchange rates.
Every US$1.00 per barrel change in the annual WTI crude oil price
impacts cash from operating activities by about $31 million, or $0.06
per share.
-- Syncrude operational reliability and production: Timing of unit
turnarounds and maintenance cannot be precisely scheduled and unplanned
outages may occur. In addition to the impact on production, maintenance
and turnaround activities affect operating costs because the costs
associated with these activities are mainly expensed in the period
incurred. The effect on per barrel operating costs is amplified as the
facility is generally producing at reduced rates when maintenance work
is occurring. The reverse is also true, meaning per barrel operating
costs decline with better operational reliability.

More information on Canadian Oil Sands' 2011 Budget is provided in our 2011 Guidance Document, which is available on the Trust's web site at under "Investor". Canadian Oil Sands intends to continue providing quarterly updates to its guidance.

Post 2011 Capital Investments

The four mining train relocations/replacements are scheduled to be completed by 2014. Canadian Oil Sands will provide further guidance on the total cost for this activity and the tailings management initiatives once that information is available, which is expected to be during 2011.

Syncrude's capital program in the second half of this decade is expected to focus on the expansion of production through the development of leases at Aurora South with the construction of two new mine trains, each with a capacity of 100,000 barrels per day. This project is in the pre-engineering phase and is scheduled to be completed by the end of the decade. The current plan is to raise Syncrude's total bitumen volumes to about 600,000 barrels per day. Roughly 150,000 barrels per day of bitumen is expected to be sold into the market, with the remaining bitumen upgraded to approximately 400,000 barrels per day of synthetic oil, based on the latest revisions to the upgrader debottleneck scope.

Cost estimates for these expansion plans are not yet available. Approvals from the Syncrude joint venture owners, including Canadian Oil Sands' Board of Directors, are required to proceed with construction.

Monthly Production Volumes

Canadian Oil Sands posts Syncrude production on a monthly basis on its website at

Syncrude production in November averaged about 357,000 barrels per day, or 131,000 barrels per day net to COS.

Canadian Oil Sands is the largest joint venture owner of Syncrude, a major producer of light, sweet, synthetic crude oil. We hold a 36.74 per cent working interest in Syncrude, generating revenue from its share of production and demonstrating a history of paying quarterly distributions. The Trust is a unique investment in long-term crude oil producing assets. Syncrude's productive capacity is 350,000 barrels per day and its reserve base could support production at that level for decades. Canadian Oil Sands Trust is an open-ended investment trust managed by Canadian Oil Sands Limited and has approximately 484.4 million units outstanding, trading on the Toronto Stock Exchange under the symbol COS.UN.

Advisory: in the interest of providing Canadian Oil Sands Trust ("Canadian Oil Sands" or the "Trust") unitholders and potential investors with information regarding the Trust, including management's assessment of the Trust's future plans and operations, certain statements throughout this release contain "forward-looking statements" under applicable securities law. Forward-looking statements in this release include, but are not limited to, statements with respect to: the expected production and Canadian Oil Sands sales in 2011; the expected operating costs for 2011; the expected amount of non-production costs, capital costs and cash from operating activities in 2011; the capital forecast for 2011; the type of maintenance that will be required in 2011; expected energy costs in 2011; WTI prices; the premium (discount) to WTI, foreign exchange rates and natural gas prices in 2011; estimates of Crown royalties for 2011; plans regarding design capacity; the plans regarding the net debt levels; plans relating to dividends as a corporation; expected cost and reduction in sulphur emissions relating to the SER project; plans with respect to the conversion from a trust to a corporate structure; plans regarding equity financing; the average per barrel production for 2011; the level and timing of production volumes expected from the mine train moves, upgrader debottleneck and Aurora South development; and the ability to expand production to support asset growth and dividends. 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 Trust believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking statements contained in this release include, but are not limited to: general operational issues relating to a complex, integrated mining and upgrading facility; operating constraints due to weather, especially as it relates to bitumen production; the regulatory changes that impact oil and gas operations; general economic, business and market conditions; commodity prices; the unanimous joint venture owner approval for major expansions; and such other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by the Trust. You are cautioned that the foregoing list of important factors is not exhaustive. The 2011 Budget reflects various assumptions, which are outlined in the guidance document dated October 28, 2010. Furthermore, the forward-looking statements contained in this release are made as of the date of this release, and the Trust 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 release are expressly qualified by this cautionary statement. The information was approved by management on October 28, 2010 and circumstances after this date may change the outcomes or results achieved.

In this release we refer to financial measures that do not have any standardized meaning as prescribed by GAAP, assuming a January 1, 2011 implementation of IFRS, such as net debt, cash from operating activities on a per share basis and certain per barrel measures. An explanation of significant anticipated changes under IFRS is provided in the Management's Discussion and Analysis ("MD&A") section of the Third Quarter 2010 report which is available on COS' website at under "Investor".

Please refer to Canadian Oil Sands' 2009 annual report for more information regarding non-GAAP financial measures.

Canadian Oil Sands Limited

Marcel Coutu, President & Chief Executive Officer

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