Canadian Oil Sands Trust First Quarter Report 2010 1 Canadian Oil Sands Trust announces 2010 first quarter results All financial figures are unaudited and in Canadian dollars unless otherwise noted.
TSX - COS.UN
Calgary, Alberta (April 29, 2010) – Canadian Oil Sands Trust (“Canadian Oil Sands”, the “Trust” or “we”) today announced first quarter 2010 cash from operating activities of $309 million ($0.64 per Unit) compared with $50 million ($0.10 per Unit) in the same quarter in 2009. The increase in cash from operating activities was mainly due to higher crude oil prices and a decrease in non-cash working capital, partially offset by higher Crown royalties. Net income for the first quarter was $167 million ($0.35 per Unit) compared with $43 million ($0.09 per Unit) for the 2009 first quarter. The increase in net income was mainly due to higher crude oil prices and foreign exchange gains, partially offset by higher Crown royalties. The Trust has declared a distribution of $0.50 per Unit payable on May 31, 2010 to Unitholders of record on May 20, 2010.
“With an improvement in our outlook for crude oil prices, we have increased the distribution to $0.50 per Unit for the second quarter of 2010. The increase also reflects our stated objective of optimizing our tax position at the end of this year. While this level of distributions may be unsustainable, it makes sense in the near term,” said Marcel Coutu, President and Chief Executive Officer. “It also returns cash to our investors in the short term without materially changing our estimated year-end net debt level.”
During the first quarter of 2010, sales volumes averaged about 99,000 barrels per day compared with 103,000 barrels per day for the first quarter of 2009. The advancement and extension of a turnaround of the LC Finer and associated upgrading units and unplanned maintenance on other units reduced sales volumes in the first quarter of 2010 while first quarter 2009 sales volumes were impacted by constrained bitumen supply and the start of the Coker 8-3 turnaround.
Operating costs in the first quarter of 2010 were $39.59 per barrel compared with $38.78 per barrel in the 2009 period. First quarter 2010 operating costs were impacted by turnaround and unplanned maintenance work, similar to the 2009 first quarter when increased maintenance costs for mining activities and the start of the Coker 8-3 turnaround contributed to higher costs.
Canadian Oil Sands Trust First Quarter Report 2010 1 Syncrude’s total recordable injury rate for the first quarter of 2010 was 0.39 compared with a rate of 0.41 for the same period of 2009.
On April 23, 2010 the ERCB approved, with conditions, Syncrude's revised tailing pond plans submitted in September 2009 under Tailings Directive 074. These plans outline a multi-pronged approach for meeting the long-term intent of Directive 074, and include the development and implementation of three main tailings technologies: water capping, composite tails and centrifuge technology. Issued by the ERCB in February 2009, Tailings Directive 074: Tailings Performance Criteria and Requirements for Oil Sands Mining Schemes requires operators to prepare tailings plans and report on tailings ponds annually, reduce the solids content of fluid tailings through the capture of fine particles from the production process in dedicated disposal areas, and convert fines into trafficable deposits which are ready for reclamation five years after deposits have ceased. The Directive sets out very challenging targets and goals for the oil sands mining industry. Syncrude is the first operating mine to receive such an approval, and assuming the success of its developing technologies, expects to meet and exceed the requirements of the Directive.
The Trust’s 2010 outlook estimates Syncrude production of 115 million barrels (42.3 million barrels, net to the Trust), with a revised production range of 110 million to 118 million barrels. Operating costs are estimated at approximately $35 per barrel, with capital expenditures totaling $532 million. Based on the Trust’s assumption of WTI crude oil averaging U.S. $80 per barrel in 2010, together with the other assumptions outlined in our outlook, we are estimating cash from operating activities of $1,273 million, or $2.63 per Unit in 2010.
More information on the Trust’s outlook is provided in the MD&A section of this report and the April 29, 2010 guidance document, which is available on our web site at www.cos-trust.com under “Investor”.
Canadian Oil Sands Trust’s Annual and Special Meeting of Unitholders will be held on April 29, 2010 at 2:30 p.m. (Mountain Daylight Time) in The Metropolitan Conference Centre, The Ballroom, 333 Fourth Avenue SW, Calgary, Alberta. A live audio Web cast of the meeting will be available on our web site at http://www.cos-trust.com/investor/EventsAndWebcasts. An archive of the Web cast will be available approximately one hour following the meeting.
At the Annual and Special Meeting of Unitholders, Canadian Oil Sands is seeking Unitholder approval for the Arrangement to convert from a trust structure to a corporation. As part of the Arrangement, Canadian Oil Sands described the dividend policy following its transition to a corporate structure. Based on current conditions, Canadian Oil Sands expects its approach to dividend payments to be very similar to its management of distribution payments as a Trust. Accordingly, dividends that Canadian Oil Sands may pay following its conversion to a corporate structure are expected to vary, reflecting changes in crude oil
Canadian Oil Sands Trust First Quarter Report 2010 2 prices, economic conditions, Syncrude’s operating performance and our operating and investing obligations. The taxability of Canadian Oil Sands after conversion also will impact cash from operating activities in future periods.
During 2010 the Trust is expecting to pay distributions in excess of its forecasted cash from operating activities less its capital expenditures in order to optimize the tax pools available to it post conversion; therefore, the current distribution is not sustainable at our current forecast crude oil price and production levels. The Trust may look to reduce net debt in advance of its increasing capital program over the next several years. This would likely require distribution reductions from current levels unless there is a significant increase in cash from operating activities.
CANADIAN OIL SANDS TRUST Highlights
Three Months Ended March 31
(millions of Canadian dollars, except per Trust unit and per barrel volume amounts) 2010 2009
Net Income $ 167 $ Per Trust unit - Basic $ 0.35 $ 0.09
Cash from (used in) Operating Activities $ 309 $ Per Trust unit $ 0.64 $ 0.10
Unitholder Distributions $ 170 $ Per Trust unit $ 0.35 $ 0.15
Sales Volumes (1)
Total (MMbbls) 8.9 9.3 Daily average (bbls) 99,286 102,825
Operating Costs ($/bbl) $ 39.59 $ 38.78
Net Realized SCO Selling Price ($/bbl) $ 82.06 $ 55.32
West Texas Intermediate (average $US/bbl) (2) $ 78.88 $ 43.31
(1) The Trust's sales volumes differ from its production volumes due to changes in inventory, which are primarily in-transit pipeline volumes, and are net of purchased crude oil volumes.
(2) Pricing obtained from Bloomberg.
Canadian Oil Sands Trust First Quarter Report 2010 3
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) was prepared as of April 29, 2010 and should be read in conjunction with the unaudited interim consolidated financial statements of Canadian Oil Sands Trust (“Canadian Oil Sands” or the “Trust”) for the three months ended March 31, 2010 and March 31, 2009, and the audited consolidated financial statements and MD&A of the Trust for the year ended December 31, 2009 and the Trust’s Annual Information Form (“AIF”) dated March 22, 2010. Additional information on the Trust, including its AIF, is available on SEDAR at www.sedar.com or on the Trust’s website at www.cos-trust.com. The Trust’s financial results have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) and are reported in Canadian dollars, unless stated otherwise.
ADVISORY- in the interest of providing the Trust’s Unitholders and potential investors with information regarding the Trust, including management’s assessment of the Trust’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 in this MD&A include, but are not limited to, statements with respect to the cost estimate for the Sulphur Emissions Reduction project and the expectation that the Sulphur Emissions Reduction project will significantly reduce total sulphur dioxide and other emissions; the completion date for the Sulphur Emissions Reduction project; future distributions and any increase or decrease from current payment amounts; the Trust’s plans with regard to its net debt level by the end of 2010 and beyond; plans regarding crude oil hedges and currency hedges in the future; the expected production, revenues and operating costs for 2010; the expected level of sustaining capital for the next few years and longer term; the expectations regarding capital expenditures and operating costs; the plans regarding conversion to a corporate structure and the timing of seeking Unitholder approval; the plans and expected impact of adopting International Financial Reporting Standards; the expected impact of any current and future environmental legislation, including without limitation, regulations relating to tailings; the expectation that there will be material funding increases relative to Syncrude’s future reclamation costs and pension funding for the next year; the expected realized selling price, which includes the anticipated differential to WTI, to be received in 2010 for Canadian Oil Sands’ product; the potential amount payable in respect of any future income tax liability; the level of energy consumption in 2010 and beyond; capital expenditures for 2010; the level of natural gas consumption in 2010 and beyond; the expected price for crude oil and natural gas in 2010, and the anticipated impact that certain factors such as natural gas and oil prices, foreign exchange and operating costs have on the Trust’s cash from operating activities and net income. 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 MD&A include, but are not limited to: the impacts of regulatory changes especially as such relate to royalties, taxation, and environmental charges; 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; the variances of stock market activities generally; global economic environment/volatility of markets; normal risks associated with litigation, general economic, business and market conditions; the impact of any decisions rendered by a court in relation to litigation including without limitation, any decision relating to the trial against Syncrude Canada Ltd. relating to the 2008 waterfowl incident; regulatory change, and such other risks and uncertainties described from time to time in the Trust’s Annual Information Form dated March 22, 2010 and in the reports and filings made with securities regulatory authorities by the Trust as well as those assumptions outlined in the Trust’s guidance document being correct. You are cautioned that the foregoing list of important factors is not exhaustive. No assurance can be given that the final legislation implementing the federal tax changes regarding income trusts will not be further changed in a manner which adversely affects the Trust and its Unitholders. 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 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 MD&A are expressly qualified by this cautionary statement.
Canadian Oil Sands Trust First Quarter Report 2010 4
REVIEW OF SYNCRUDE OPERATIONS
During the first quarter of 2010, crude oil production from the Syncrude Joint Venture (“Syncrude”) totaled 24.2 million barrels, or 269,000 barrels per day, compared with 24.6 million barrels, or 274,000 barrels per day, during the same period of 2009. Net to the Trust, production totaled 8.9 million barrels in the first quarter of 2010 compared with 9.0 million barrels in the first quarter of 2009, based on our 36.74 per cent working interest.
Production volumes in the first quarter of 2010 reflect the turnaround advancement and extension on the LC Finer and associated upgrading units and unplanned maintenance on other units. The turnaround work was originally scheduled for the second quarter of 2010. By comparison, production during the first quarter of 2009 was impacted by constrained bitumen production and the start of the Coker 8-3 turnaround.
Canadian Oil Sands’ operating costs were $354 million, or $39.59 per barrel, in the first quarter of 2010, compared to $359 million, or $38.78 per barrel, in the same quarter of 2009. (see the “Operating costs” section of this MD&A for further discussion).
Syncrude’s facilities have the design capability to produce approximately 375,000 barrels per day when operating at full capacity under optimal conditions and with no downtime for maintenance or turnarounds. The average design capacity is 350,000 barrels per day when allowances for scheduled maintenance and turnaround activities are included. The Trust’s production volumes differ from its sales volumes due to changes in inventory, which are primarily in-transit pipeline volumes.
Canadian Oil Sands Trust First Quarter Report 2010 5
SUMMARY OF QUARTERLY RESULTS
| 2010 2009 | 2008 | |||
| ($ millions, except per Trust Unit and volume amounts) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 | ||||
| Revenues (1) Net income (loss) Per Trust Unit, Basic & Diluted Cash from operating activities Per Trust Unit (2) Unitholder distributions Per Trust Unit Daily average sales volumes (bbls) (3) Net realized SCO selling price ($/bbl) (4) Operating costs ($/bbl) (5) | $ 7 34 $ 1 67 $ 0 .35 $ 3 09 $ 0 .64 $ 1 70 $ 0 .35 99,286 $ 8 2.06 $ 3 9.59 $ 4 .95 $ 7 8.88 $ 0 .96 $ 0 .98 | $ 8 63 $ 773 $ 467 $ 512 $ 9 6 $ 247 $ 46 $ 43 $ 0 .20 $ 0.51 $ 0.10 $ 0.09 $ 3 28 $ 213 $ ( 44) $ 50 $ 0 .68 $ 0.44 $ ( 0.09) $ 0.10 $ 1 69 $ 121 $ 73 $ 72 $ 0 .35 $ 0.25 $ 0.15 $ 0.15 119,287 114,544 75,553 102,825 $ 7 8.67 $ 73.31 $ 67.92 $ 55.32 $ 3 0.18 $ 27.80 $ 50.23 $ 38.78 $ 4 .33 $ 2.90 $ 3.09 $ 4.96 $ 7 6.13 $ 68.24 $ 59.79 $ 43.31 $ 0 .95 $ 0.91 $ 0.86 $ 0.80 $ 0 .96 $ 0.93 $ 0.86 $ 0.79 | $ 704 $ 1,381 $ 1,177 $ 124 $ 604 $ 497 $ 0.26 $ 1.25 $ 1.04 $ 466 $ 921 $ 413 $ 0.97 $ 1.91 $ 0.86 $ 361 $ 602 $ 481 $ 0.75 $ 1.25 $ 1.00 110,197 116,656 97,744 $ 69.40 $ 127.55 $ 131.32 $ 32.10 $ 32.15 $ 41.92 | |
| Purchased natural gas price ($/GJ) | $ 6.41 $ 7.86 | $ 9.38 | ||
| West Texas Intermediate (avg. US$/bbl) (6) Foreign exchange rates (US$/Cdn$): Average Quarter-end | $ 59.08 $ 118.22 $ 123.80 $ 0.83 $ 0.96 $ 0.99 $ 0.82 $ 0.94 $ 0.98 | |||
| (1) Revenues after crude oil purchases and transportation expense. (2) Cash from operating activities per Trust Unit is a non-GAAP measure that is derived from cash from operating activities reported on the Trust's Consolidated Statements of Cash Flows divided by the weighted-average number of Trust Units outstanding in the period, as used in the Trust's net income per Unit calculations. (3) Daily average sales volumes after crude oil purchases. (4) Net realized SCO selling price after foreign currency hedging. (5) Derived from operating costs, as reported on the Trust's Consolidated Statements of Income and Comprehensive Income, divided by the sales volumes during the period. (6) Pricing obtained from Bloomberg. |
During the last eight quarters, the following items have had a significant impact on the Trust’s financial results:
- Fluctuations in U.S. dollar WTI oil prices have impacted the Trust’s revenues, Crown royalties, net income and cash from operating activities;
- 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;
- Planned and unplanned maintenance activities as well as turnarounds have impacted quarterly production volumes, sales revenues and operating costs;
- 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; and
- Tax rate reductions substantively enacted in the first quarter of 2009 resulted in additional future income tax recoveries of $63 million.
Quarterly variances in revenues, net income, and cash from operating activities are caused mainly by fluctuations in crude oil prices, production and sales volumes, operating costs and natural gas prices. Net income also is impacted by unrealized foreign exchange gains and losses, impairment charges and by future income tax amounts. While the supply/demand balance for crude oil affects selling prices, the impact of this equation is difficult to predict and quantify and has not displayed significant seasonality.
Canadian Oil Sands Trust First Quarter Report 2010 6 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. Maintenance and turnaround activities impact both production volumes and operating costs. In addition, a large proportion of operating costs are fixed and, as such, per barrel operating costs are variable to production volumes. The costs associated with these activities are expensed in the period they are incurred, which can lead to significant increases in operating costs. The effect on per barrel operating costs of these maintenance activities is amplified as the facility is generally producing at reduced rates when maintenance work is occurring.
REVIEW OF FINANCIAL RESULTS
In the first quarter of 2010, the Trust reported net income of $167 million, or $0.35 per Unit, compared with $43 million, or $0.09 per Unit, recorded in the first quarter of 2009. The increase in net income reflects higher revenues and foreign exchange gains, partially offset by higher Crown royalties and lower future income tax recoveries.
Revenues after crude oil purchases and transportation costs totaled $734 million in the first quarter of 2010 versus $512 million in the first quarter of 2009. The increase in revenues was due mainly to higher crude oil prices during the first quarter of 2010 (see the “Revenues after Crude Oil Purchases and Transportation Expense” section of this MD&A for further discussion).
Cash from operating activities was $309 million, or $0.64 per Unit, for the first quarter of 2010 versus $50 million, or $0.10 per Unit, for the first quarter of 2009. The increase in quarter-over-quarter cash from operating activities was due to higher revenues and a decrease in non-cash working capital, partially offset by higher Crown royalties.
Non-cash working capital increased cash from operating activities by $104 million in the first quarter of 2010, primarily as a result of higher accounts payable, reflecting increased maintenance costs incurred during the quarter. In the first quarter of 2009, non-cash working capital decreased cash from operating activities by $19 million, primarily as a result of higher accounts receivable at March 31, 2009 relative to December 31, 2008.
Non-cash working capital and changes therein can vary significantly on a period-by-period basis as a result of the timing and settlements of accounts receivable and accounts payable balances, and are
Canadian Oil Sands Trust First Quarter Report 2010 7 impacted by a number of factors including changes in: revenue, operating expenses, Crown royalties, capital expenditures, and inventory fluctuations.
Non-GAAP Financial Measures
In this MD&A 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 from operating activities on a per Unit basis, net debt, total capitalization, net debt to total capitalization, and certain per barrel measures. Cash from operating activities per Unit is calculated as cash from operating activities as reported on the Trust’s Consolidated Statement of Cash Flows divided by the weighted-average number of Units outstanding in the period. This measure is an indicator of the Trust’s capacity to fund capital expenditures, distributions, and other investing activities without incremental financing. In addition, the Trust refers to various per barrel figures, such as net realized selling prices, operating costs and Crown royalties, which also are considered non-GAAP measures, but provide meaningful information on the performance of the Trust. We derive per barrel figures by dividing the relevant revenue 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 Trust’s operational performance, its liquidity and its capacity to fund distributions, capital expenditures and other investing activities. Users are cautioned that non-GAAP financial measures presented by the Trust may not be comparable with measures provided by other entities.
Canadian Oil Sands Trust First Quarter Report 2010 8
Net Income per Barrel
| Three Months Ended March 31 ($ per bbl) 1 2010 2009 Variance | ||
| Revenues after crude oil purchases and transportation expense Operating costs Crown royalties | 82.10 55.32 (39.59) (38.78) (8.74) (0.48) | 26.78 (0.81) (8.26) 17.71 (0.47) (0.33) (0.82) (0.06) 6.90 (8.92) (3.70) 14.01 (0.4) |
| 33.77 16.06 | ||
| Non-production costs Administration and insurance Interest, net Depreciation, depletion and accretion Foreign exchange gain (loss) Future income tax recovery and other | (4.04) (3.57) (1.15) (0.82) (2.96) (2.14) (11.49) (11.43) 3.72 (3.18) 0.76 9.68 | |
| (15.16) (11.46) | ||
| Net income per barrel | 18.61 4.60 | |
| Sales volumes (MMbbls) 2 | 8.9 9.3 | |
| 1 Unless otherwise specified, net income and other 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. |
Revenues after Crude Oil Purchases and Transportation Expense
| Three Months Ended March 31 ($ millions) 2010 2009 Variance | |||
|---|---|---|---|
| Sales revenue 1 Crude oil purchases Transportation expense | $ 898 (159) (6) | $ 548 $ 350 (29) (130) (8) 2 | |
| Currency hedging gains 1 | 733 1 | 511 222 1 - | |
| $ 734 | $ 512 $ 222 | ||
| Sales volumes (MMbbls) 2 | 8.9 | 9.3 (0.4) | |
| 1 The sum of sales revenue and currency hedging gains equals Revenues on the Trust's Consolidated Statements of Income and Comprehensive Income. Sales revenue includes revenue from the sale of purchased crude oil and sulphur revenue. 2 Sales volumes, net of purchased crude oil volumes. ($ per barrel) | |||
| Realized SCO selling price before hedging 3 Currency hedging gains | $ 81.96 0.10 | $ 55.22 $ 26.74 0.10 - | |
| Net realized SCO selling price | $ 82.06 | $ 55.32 $ 26.74 | |
| 3 SCO sales revenue | after crude oil purchases and transportation expense div | ided by sales volumes, net of purchased crude oil volumes. |
Canadian Oil Sands Trust First Quarter Report 2010 9 The increase in sales revenue after crude oil purchases and transportation expense in the first quarter of 2010 versus 2009 primarily reflects a higher realized selling price for our synthetic crude oil (“SCO”). During the first quarter of 2010, WTI averaged U.S. $79 per barrel compared to U.S. $43 per barrel in the first quarter of 2009. The impact of the higher U.S. dollar WTI price in the first quarter of 2010 was offset somewhat by a stronger Canadian dollar, which averaged $0.96 U.S./Cdn for the first quarter of 2010 versus $0.80 U.S./Cdn for the first quarter of 2009.
The Trust’s SCO price is also affected by the premium or discount realized relative to Canadian dollar WTI (the “differential”). In the first quarter of 2010, the Trust realized a weighted-average SCO discount of $0.05 per barrel versus a premium of $1.43 per barrel for the same period of 2009. 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 Trust’s first quarter sales volumes averaged 99,000 barrels per day and 103,000 barrels per day in 2010 and 2009, respectively. Sales volumes for the first quarter of 2010 reflect the turnaround advancement and extension on the LC Finer and a number of hydroprocessing units. Sales volumes during the first quarter of 2009 were impacted by constrained bitumen production and the start of the Coker 8-3 turnaround.
The Trust purchases crude oil from third parties 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 revenue includes revenue from the sale of purchased crude oil. Increased crude oil purchases during the first quarter of 2010 reflect additional activities to support production shortfalls and incremental purchases associated with tankage arrangements, as well as higher crude oil prices as compared to the first quarter of 2009.
Operating Costs
The following table breaks down operating costs into their major components and shows bitumen costs both on a per barrel of bitumen and a per barrel of SCO produced basis. The information allocates costs to bitumen production and upgrading based on deductibility for bitumen royalty purposes. The Syncrude Royalty Amending Agreement provides for allowed bitumen costs, before internal fuel allocation, to be 64.5 per cent of Syncrude total operating costs until December 31, 2010.
Canadian Oil Sands Trust First Quarter Report 2010 10
| Three Months Ended March 31 2010 2009 | ||
| $/bbl $/bbl $/bbl $/bbl Bitumen SCO Bitumen SCO | ||
| $ 22.10 $ 27.53 $ 21.37 $ 26.28 3.27 4.07 2.32 2.85 | ||
| Bitumen production Internal fuel allocation 2 | ||
| Total produced bitumen costs | ||
| Upgrading costs 1 Less: Internal fuel allocation to bitumen 2 Bitumen purchases | ||
| Total Syncrude operating costs Canadian Oil Sands' adjustments 3 | 41.81 41.11 (2.22) (2.33) | |
| Total operating costs | 39.59 38.78 | |
| (thousands of barrels per day) | Bitumen SCO Bitumen SCO |
Syncrude production volumes 4 336 269 337 274
1Upgrading costs include the production and ongoing maintenance costs associated with processing and upgrading of bitumen to SCO. It also includes the costs of major upgrading equipment turnarounds and catalyst replacement, all of which are expensed as incurred.
2Natural gas prices averaged $4.95 per GJ and $4.96 per GJ in the first quarter of 2010 and 2009, respectively.
3Canadian Oil Sands’ adjustments mainly pertain to actual reclamation costs, Syncrude-related pension costs, as well as the inventory impact of moving from production to sales as Syncrude reports per barrel costs based on production volumes and the Trust reports based on sales volumes.
4Syncrude SCO production volumes include the impact of processed purchased bitumen volumes.
| Three Months Ended March 31 ($/bbl of SCO) 2010 2009 | |
| Production costs Purchased energy | $ 34.36 $ 33.12 5.23 5.66 |
| Total operating costs | $ 39.59 $ 38.78 |
| (GJs/bbl of SCO) | |
| Purchased energy consumption | 1.06 1.14 |
In the first quarter of 2010, operating costs were $354 million, averaging $39.59 per barrel, compared to $359 million, or $38.78 per barrel in the first quarter 2009.
Operating costs in the first quarter of 2010 reflect the turnaround advancement and extension on the LC Finer and associated upgrading units and unplanned maintenance. By comparison, operating costs in the first quarter of 2009 reflect maintenance costs in respect of mining activities, and the start of the Coker 8-3 turnaround that began in March 2009. Purchased energy consumption was also higher in the first quarter of 2009 due to the coker turnaround.
Canadian Oil Sands Trust First Quarter Report 2010 11
Non-Production Costs
Non-production costs totaled $36 million and $33 million in the first quarters of 2010 and 2009, respectively. Non-production costs consist primarily of development expenditures relating to capital programs, such as pre-feasibility engineering, technical and support services, research and development, and regulatory and stakeholder consultation expenditures. Non-production costs can vary on a periodic basis depending on the number of projects underway and the status of the projects.
Crown Royalties
In the first quarter of 2010, Crown royalties increased to $78 million, or $8.74 per barrel, from $4 million, or $0.48 per barrel, in the comparable 2009 quarter. Crown royalties in the first quarter of 2009 were paid at the minimum one per cent bitumen royalty rate, while first quarter 2010 Crown royalties were accrued at 25 per cent of net revenues and reflect higher deemed bitumen revenues. First quarter 2010 Crown royalties also reflect the additional royalty expense under the transition agreement with the Alberta government, which did not apply until January 1, 2010.
The Syncrude Amended Royalty Agreement requires that bitumen be valued by a formula that references the value of bitumen based on a Canadian heavy oil price adjusted for reasonable quality, transportation and handling deductions (including diluent costs) to reflect the quality and location differences between Syncrude’s bitumen and the reference price of bitumen. The Alberta government, Syncrude, and the Syncrude owners are in discussions to determine the appropriate adjustments for quality, transportation and handling. For estimating and paying royalties, Syncrude has used a bitumen value based on Syncrude and its owners’ interpretation of the Syncrude Amended Royalty Agreement, and their estimates of the appropriate quality, transportation and handling adjustments. These adjustments are different than those provided under the Alberta government’s generic bitumen valuation methodology. The Syncrude owners and the Alberta government continue to discuss the basis for these reasonable adjustments but if such discussions do not result in an agreed upon solution, either party may seek judicial determination of the matter.
Interest Expense, Net
| Three Months Ended March 31 ($ millions) 2010 2009 | ||
|---|---|---|
| $ 26 - | ||
| Interest expense on long-term debt Interest income and other | $ 21 (1) | |
| Interest expense, net | $ 26 | $ 20 |
The increase in interest expense on long-term debt was mainly due to consent solicitation fees paid for the Trust’s corporate conversion plans. Interest expense in the first quarter of 2010 also reflects the
Canadian Oil Sands Trust First Quarter Report 2010 12