Canadian Oil Sands Announces Second Quarter Financial Results and a $0.35 Per Share Dividend

Canadian Oil Sands Announces Second Quarter Financial Results and a $0.35 Per 
Share Dividend 
-- COS also announces planned retirement of President and CEO, Marcel
Coutu -- 
CALGARY, ALBERTA -- (Marketwired) -- 07/30/13 -- Canadian Oil Sands
Limited (TSX:COS)(OTCQX:COSWF) 
All financial figures are unaudited and in Canadian dollars unless
otherwise noted. 
Highlights for the three and six-month periods ended June 30, 2013: 


 
--  Cash flow from operations increased to $343 million, or $0.71 per Share,
    in the second quarter of 2013 from $245 million, or $0.51 per Share, in
    the second quarter of 2012, reflecting a higher realized selling price
    and higher sales volumes, partially offset by higher current taxes. In
    the first six months of 2013, cash flow from operations decreased to
    $618 million, or $1.28 per Share, from $699 million, or $1.44 per Share,
    for the same period in 2012, reflecting higher current taxes partially
    offset by a higher realized selling price and lower Crown royalties. 
--  Net income increased to $219 million, or $0.45 per Share, in the second
    quarter of 2013 from $101 million, or $0.21 per Share, in the second
    quarter of 2012, reflecting a higher realized selling price and higher
    sales volumes, partially offset by higher taxes in 2013. On a year-to-
    date basis, net income decreased to $396 million, or $0.82 per Share, in
    2013 from $419 million, or $0.86 per Share, in 2012. 
--  COS has maintained its quarterly dividend at $0.35 per Share, payable on
    August 30, 2013 to shareholders of record on August 23, 2013. In the
    first half of 2013, the Corporation paid dividends to shareholders
    totalling $339 million, or $0.70 per Share. 
--  Sales volumes averaged about 100,100 barrels per day in the second
    quarter of 2013 compared with 89,500 barrels per day in the second
    quarter of 2012, reflecting the start of turnarounds on Coker 8-1 and
    the LC Finer as well as unplanned outages in extraction units in 2013
    versus the full Coker 8-3 and Vacuum Distillation Unit turnarounds in
    2012. Year-to-date, sales volumes averaged about 97,900 barrels per day
    compared to 98,800 in 2012.  
--  Capital expenditures increased to $369 million in the second quarter of
  
  2013 from $292 million in the second quarter of 2012, as a result of
    spending on the major projects at Syncrude to replace or relocate mine
    trains and to support tailings management plans. For the first six
    months of 2013, capital expenditures increased to $637 million from $433
    million for the same period in 2012. All four major capital projects
    remain on schedule and on budget.  
--  Operating expenses decreased to $394 million, or $43.23 per barrel, in
    the second quarter of 2013 from $409 million, or $50.25 per barrel, in
    the same quarter of 2012, reflecting less maintenance activity partially
    offset by higher natural gas prices. Year-to-date, operating expenses
    increased to $749 million, or $42.24 per barrel, in 2013 from $730
    million, or $40.63 per barrel, in the comparative 2012 period,
    reflecting higher natural gas prices. Per-barrel operating expenses are
    also impacted by sales volumes, which were higher in the second quarter
    of 2013, and similar in the first half of 2013, relative to the
    comparative 2012 periods. 
--  Net debt, comprised of current and non-current portions of long-term
    debt less cash and cash equivalents, increased to $481 million at June
    30, 2013 from $241 million at December 31, 2012, as existing cash
    balances were used to fund capital expenditures and dividend payments in
    excess of cash flow from operations. 
--  The first of two mine train relocations at Aurora North was completed
    earlier this month, and the mine train is now operating at its new site.
    The relocation of the second mine train is underway and is anticipated
    to be complete in the fourth quarter of 2013, with close-out and clean-
    up work continuing into the first quarter of 2014. 
--  The turnaround of Coker 8-1 was accelerated to the second quarter of
    2013 from the second half of the year as a result of an unplanned outage
    in an associated boiler unit that reduced throughput in the coker.  
--  On June 7, 2013, the Energy Resource and Conservation Board (ERCB)
    released its assessment report on the Alberta government's Directive 74,
    which sets out industry-wide standards to reduce the size and number of
    tailings ponds. The ERCB's report indicates that, over the past two
    reporting periods covering 2010 to 2012, Syncrude's performance achieved
    the cumulative fines capture that was set out in the plan Syncrude
    submitted to the ERCB. 

 
"COS' operational results primarily reflect the accelerated Coker 8-1
turnaround, which was originally scheduled for September, as well as
reduced reliability in Syncrude's extraction units," said Marcel
Coutu, President and Chief Executive Officer. "At the same time, we
made significant progress on our major projects with the successful
move of the first of two mine trains at Aurora North, which is now up
and running. We believe that Syncrude will achieve better performance
in the second half of 2013 and look forward to the completion of the
second mine train move in the fourth quarter."  
"COS' results also incorporate better-than-expected pricing for West
Texas Intermediate, the benchmark crude on which our product pricing
is based, a strong $4.70 per barrel premium to WTI for our Synthetic
Crude Oil and a favourable U.S. to Canadian dollar exchange rate,"
said Marcel Coutu, President and Chief Executive Officer. "Our
balance sheet remains strong with a cash position of $1.4 billion
that will be used to advance our major capital program while
maintaining a healthy $0.35 per Share quarterly dividend."  
Highlights 


 
                                   Three Months Ended    Six Months Ended   
                                         June 30              June 30       
                                        2013      2012       2013      2012 
----------------------------------------------------------------------------
                                                                            
Cash flow from operations(1) ($                                             
 millions)                         $     343 $     245  $     618 $     699 
  Per Share(1)($/Share)            $    0.71 $    0.51  $    1.28 $    1.44 
                                                                            
Net income ($ millions)            $     219 $     101  $     396 $     419 
  Per Share, Basic and Diluted                                              
   ($/Share)                       $    0.45 $    0.21  $    0.82 $    0.86 
                                                                            
Sales volumes(2)                                                            
  Total (mmbbls)                         9.1       8.1       17.7      18.0 
  Daily average (bbls)               100,094    89,460     97,901    98,784 
                                                                            
Realized SCO selling price ($/bbl) $  100.90 $   90.59  $   98.56 $   94.13 
                                                                            
West Texas Intermediate ("WTI")                                             
 (average $US/bbl)                 $   94.17 $   93.35  $   94.26 $   98.15 
                                     
                                       
SCO premium (discount) to WTI                                               
 (weighted average $/bbl)          $    4.69 $   (5.31) $    2.85 $   (5.62)
                                                                            
Operating expenses ($/bbl)         $   43.23 $   50.25  $   42.24 $   40.63 
                                                                            
Capital expenditures ($ millions)  $     369 $     292  $     637 $     433 
                                                                            
Dividends ($ millions)             $     169 $     170  $     339 $     315 
  Per Share ($/Share)              $    0.35 $    0.35  $    0.70 $    0.65 
----------------------------------------------------------------------------
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(1) Cash flow from operations and cash flow from operations per Share are   
 additional GAAP financial measures and are defined in the "Additional GAAP 
Financial Measures" section of our Management's Discussion and Analysis     
 ("MD&A").                                                                  
(2) The Corporation's sales volumes differ from its production volumes due  
 to changes in inventory, which are primarily in-transit pipeline volumes.  
Sales volumes are net of purchases.                                         

 
Syncrude operations 
During the second quarter of 2013, Syncrude produced an average of
273,100 barrels per day (total 24.8 million barrels), compared with
238,500 barrels per day (total 21.7 million barrels) during the same
2012 period. Production in the second quarter of 2013 reflects the
start of turnarounds on Coker 8-1 and the LC Finer and unplanned
outages in extraction units while production in the second quarter of
2012 reflects full turnarounds on Coker 8-3 and the Vacuum
Distillation Unit. 
Year-to-date, Syncrude produced an average 266,800 barrels per day
(total 48.3 million barrels) in 2013 compared with 266,700 barrels
per day (total 48.5 million barrels) in 2012.  
2013 Outlook revised 
COS has reduced its production estimate to 100 to 104 million barrels
for 2013 with a single-point estimate of 102 million barrels. The
production outlook reflects actual results to date, a larger than
anticipated production impact for the Coker 8-1 turnaround, and more
reliable operations in the second half of the year. 
Canadian Oil Sands provides the following additional key estimates
and assumptions for 2013: 


 
--  Sales, net of crude oil purchases and transportation expense, of
    approximately $3.5 billion reflect estimated sales volumes of 37.5
    million barrels and a $94 per barrel plant-gate realized selling price
    (based on a U.S. $90 per barrel WTI oil price, a $2 per barrel SCO
    premium to Cdn dollar WTI and a foreign exchange rate of $0.98
    U.S./Cdn).  
--  Operating expenses of $1,507 million, or $40.21 per barrel, reflecting
    actual costs incurred to date and a natural gas price assumption of
    $3.50 per gigajoule. 
--  Cash flow from operations of $1,260 million, or $2.60 per Share. 
--  Capital expenditures are estimated to total $1,279 million, comprised of
    $828 million of spending on major projects, $349 million in regular
    maintenance of the business and other projects, and $102 million in
    capitalized interest. 
--  COS intends to maintain a quarterly dividend of $0.35 per Share in 2013,
    based on the assumptions provided in our Outlook for 2013. 

 
More information on the 2013 Outlook is provided in our MD&A and the
July 30, 2013 guidance document, which is available on our web site
at www.cdnoilsands.com under "Investor Centre". 
The 2013 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. 
Retirement of President and CEO, Marcel Coutu  
Marcel Coutu, President and CEO of Canadian Oil Sands Limited, today
announced his plan to retire effective January 1, 2014. 
Mr. Coutu joined COS in August 2001 as the President and CEO of the
newly merged entity, Canadian Oil Sands Trust. Over his 12-year
tenure with the company, COS grew from a $2 billion market cap income
trust with a 21.74 per cent Syncrude interest to a $10 billion market
cap corporation with a 36.74 per cent Syncrude interest. He also
recruited the present COS management team and internalized the
marketing function, thereby providing more management control over
COS' share of Syncrude's crude oil output. Furthermore, Mr. Coutu
elevated COS' influence in the Syncrude Joint Venture on behalf of
all shareholders through his activities as Chairman of the Board of
Syncrude Canada, and chair of the Syncrude CEO Committee and
Management Committee.  
"I have been fortunate and proud to lead COS through the economic and
commodity cycles of the past decade. With this solid asset base, a
talented management team and the approaching completion of Syncrude's
major sustaining projects, I believe COS is well positioned for
continued success; it's therefore a good time for me to pass the
leadership of this great company on to a successor," said Mr. Coutu.  
Scott Sullivan, CEO of Syncrude Canada, commented: "On behalf of the
Syncrude Joint Venture and in particular its founding owner, Imperial
Oil Ltd., we extend our warmest wishes to our Chairman, Mr. Coutu,
for a long and healthy retirement in appreciation for the commitment
and leadership he provided to Canada's largest oil sands mining
project for more than a decade."  
COS' Board of Directors has a succession plan in place and has
commenced a search for his successor. Mr. Coutu has agreed to provide
consulting services for one year following his effective retirement
date to support an orderly and seamless transition.  
"The Board would like to thank Mr. Coutu for his leadership and
commitment to COS. During his tenure, COS delivered a 14 per cent
compound total return to shareholders that includes share price
appreciation as well as dividends totalling $6.8 billion. Today, COS
remains in the top half of its peer group for total shareholder
return," said Don Lowry, Chairman of COS.  
Management's Discussion and Analysis 
The following Management's Discussion and Analysis ("MD&A") was
prepared as of July 30, 2013 and should be read in conjunction with
the unaudited consolidated financial statements and notes thereto of
Canadian Oil Sands Limited (the "Corporation") for the three and six
months ended June 30, 2013 and June 30, 2012, the audited
consolidated financial statements and MD&A of the Corporation for the
year ended December 31, 2012 and the Corporation's Annual Information
Form ("AIF") dated February 21, 2013. 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", "COS" or "we" include the
Corporation, its subsidiaries and partnerships. The financial results
of Canadian Oil Sands have been prepared in accordance with Canadian
G
enerally Accepted Accounting Principles ("GAAP") and are reported in
Canadian dollars, unless otherwise noted.  
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 information" 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 and the related press release
include, but are not limited to, statements with respect to: the
expectations regarding the 2013 annual Syncrude forecasted production
range of 100 million barrels to 104 million barrels and the
single-point Syncrude production estimate of 102 million barrels
(37.5 million barrels net to the Corporation); the expectation that
the Coker 8-1 turnaround will be completed in early August, 2013; the
intention to maintain a quarterly dividend of $0.35 per Share in 2013
based on the assumptions in our 2013 Outlook; 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; the level of
natural gas consumption in 2013 and beyond; views on North American
natural gas production levels and prices; the expected sales,
operating expenses, development expenses, Crown royalties, capital
expenditures and cash flow from operations for 2013; the anticipated
amount of current taxes in 2013; expectations regarding current taxes
beyond 2013; expectations regarding the Corporation's cash levels for
2013 and 2014; the expected price for crude oil and natural gas in
2013; the expected foreign exchange rates in 2013; the expected
realized selling price, which includes the anticipated differential
to West Texas Intermediate ("WTI") to be received in 2013 for the
Corporation's product; the expectations regarding net debt; the
anticipated impact of increases or decreases in oil prices,
production, operating expenses, foreign exchange rates and natural
gas prices on the Corporation's cash flow from operations; the
expectation that regular maintenance capital costs will average
approximately $10 per barrel over the next few years; the expected
amount of total major project costs, anticipated target in-service
dates and estimated completion percentages for the Mildred Lake mine
train replacements, the Aurora North mine train relocations, the
composite tails plant at the Aurora North mine and the centrifuge
plant at the Mildred Lake mine; the cost estimates for 2013 to 2015
major project spending; the expectation that the volatility in the
Synthetic Crude Oil ("SCO") to WTI differential is likely to persist
for several years until additional pipeline or other delivery
capacity is available to deliver crude oil from Western Canada to
Cushing, Oklahoma, the U.S. Gulf Coast or the Canadian East or West
Coasts; the timing of the Aurora North mine train relocations; and
the belief that Syncrude will achieve better performance in the
second half of 2013.  
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 the 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 July 30, 2013 and as
subsequently amended or replaced from time to time, including without
limitation, the assumptions as to production, operating expenses and
oil prices; the successful and timely implementation of capital
projects; Syncrude's major project spending plans; 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
and resources 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 product;
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 74; volatility of crude oil prices; volatility of the SCO
to WTI price differential; unsuccessful or untimely implementation of
capital or maintenance projects; various events that could disrupt
operations, including fires, equipment failures and severe weather
and such other risks and uncertainties described in the Corporation's
AIF dated February 21, 2013 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 and the related press release are made as of July 30, 2013,
and unless required by law, the Corporation does not undertake any
obligati
on 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 and the related press release are expressly qualified by
this cautionary statement. 
Additional GAAP Financial Measures 
In this MD&A and the related press release, we refer to additional
GAAP financial measures that do not have any standardized meaning as
prescribed by Canadian GAAP. Additional GAAP financial measures are
line items, headings or subtotals in addition to those required under
Canadian GAAP, and financial measures disclosed in the notes to the
financial statements which are relevant to an understanding of the
financial statements and are not presented elsewhere in the financial
statements. These measures have been described and presented in order
to provide shareholders and potential investors with additional
measures for analyzing our ability to generate funds to finance our
operations and information regarding our liquidity. Users are
cautioned that additional GAAP financial measures presented by the
Corporation may not be comparable with measures provided by other
entities. 
Additional GAAP financial measures include: cash flow from
operations, cash flow from operations per Share, net debt, total net
capitalization, total capitalization, net debt-to-total net
capitalization and long-term debt-to-total capitalization. 
Cash flow from operations is calculated as cash from operating
activities 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 cash flow from operations and cash flow from
operations per Share, which are not impacted by fluctuations in
non-cash working capital balances, are more indicative of operational
performance than cash from operating activities. With the exception
of current tax payable and liabilities for Crown royalties, 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     Six Months Ended
                                                 June 30         June 30    
($ millions)                                    2013    2012    2013    2012
----------------------------------------------------------------------------
                                                                            
Cash flow from operations(1)                 $   343 $   245 $   618 $   699
Change in non-cash working capital(1)            119     117     172     229
----------------------------------------------------------------------------
Cash from operating activities(1)            $   462 $   362 $   790 $   928
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)As reported in the Consolidated Statements of Cash Flows.                

 
Net debt, total net capitalization, total capitalization, net
debt-to-total net capitalization and long-term debt-to-total
capitalization are used by the Corporation to manage capital, as
discussed in the "Liquidity and Capital Resources" section of this
MD&A and in Note 12 to the unaudited consolidated financial
statements for the three and six months ended June 30, 2013. 
Overview 
Synthetic Crude Oil ("SCO") production from the Syncrude Joint
Venture ("Syncrude") was lower than expected in the second quarter of
2013, primarily due to a turnaround on Coker 8-1, which commenced in
early June, and unplanned outages in extraction units. The Coker 8-1
turnaround was scheduled to occur in the second half of the year but
was advanced following an outage on an associated boiler unit.
Syncrude second quarter production volumes totalled 24.8 million
barrels, or 273,100 barrels per day, compared with 28.0 million
barrels, or 307,700 barrels per day in our April 30, 2013 Outlook
(included in the first quarter 2013 MD&A).  
Cash flow from operations totalled $343 million in the second
quarter, driven largely by a U.S. $94 per barrel West Texas
Intermediate ("WTI") oil price and a $4.69 per barrel SCO premium to
WTI. COS realized a $101 per barrel average selling price, 19 per
cent higher than the $85 per barrel annual forecast in the April 30,
2013 Outlook. Operating expenses averaged $43.23 per barrel,
reflecting the lower-than-expected volumes. Syncrude's major capital
projects progressed as planned with $369 million of capital spending
(net to COS) in the quarter. We achieved an important milestone with
the relocation and start-up of the first of two mine trains at the
Aurora North mine in July. Relocation of the second mine train is
scheduled to be complete in the fourth quarter. 
Based on the results achieved in the first half of the year, we have
updated our 2013 Outlook to reflect a higher $94 per barrel realized
selling price and a lower Syncrude production range of 100 to 104
million barrels with a single-point estimate of 102 million barrels.
Our revised 2013 Outlook estimates 2013 cash flow from operations of
$1.3 billion which, combined with our $1.4 billion of cash at June
30, 2013, should allow us to fund our estimated $1.3 billion of
capital expenditures and maintain the $0.35 per Share quarterly
dividend in 2013. 
Highlights 


 
                                   Three Months Ended    Six Months Ended   
                                         June 30              June 30       
                                        2013      2012       2013      2012 
----------------------------------------------------------------------------
                                                                            
Cash flow from operations(1)($                                              
 millions)                         $     343 $     245  $     618 $     699 
  Per Share(1)($/Share)            $    0.71 $    0.51  $    1.28 $    1.44 
                                                                            
Net income ($ millions)            $     219 $     101  $     396 $     419 
  Per Share, Basic and Diluted                                              
   ($/Share)                       $    0.45 $    0.21  $    0.82 $    0.86 
                                                                            
Sales volumes(2)                                                            
  Total (mmbbls)                         9.1       8.1       17.7      18.0 
  Daily average (bbls)               100,094    89,460     97,901    98,784 
                                                                            
Realized SCO selling price ($/bbl) $  100.90 $   90.59  $   98.56 $   94.13 
                                                                            
West Texas Intermediate ("WTI")                                             
 (average $US/bbl)                 $   94.17 $   93.35  $   94.26 $   98.15 
                                                                            
SCO premium (discount) to WTI                                               
 (weighted average $/bbl)          $    4.69 $   (5.31) $    2.85 $   (5.62)
                                                                            
Operating expenses ($/bbl)         $   43.23 $   50.25  $   42.24 $   40.63 
                                                                            
Capital expenditures ($ millions)  $     369 $     292  $     637 $     433 
                                                                            
Dividends ($ millions)             $     169 $     170  $     339 $     315 
  Per Share ($/Share)              $    0.35 $    0.35  $    0.70 $    0.65 
----------------------------------------------------------------------------
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(1)Cash flow from operations and cash flow from operations per Share are    
 additional GAAP financial measures and are defined in the "Additional GAAP 
 Financial Measures" section of this MD&A.                                  
(2)The Corporation's sales volumes differ from its production volumes due   
 to changes in inventory, which are primarily in-transit pipeline volumes.  
 Sales volumes are net of purchases.                                        

 
Review of Financial Results 
To view the Cash Flow from Operations, please visit the following
link: http://media3.marketwire.com/docs/COSimage.pdf. 
Cash flow from operations increased to $343 million, or $0.71 per
Share, in the second quarter of 2013 from $245 million, or $0.51 per
Share
, in the second quarter of 2012, reflecting a higher realized
selling price and higher sales volumes, partially offset by higher
current taxes. On a year-to-date basis, cash flow from operations
decreased to $618 million, or $1.28 per Share, in 2013 from $699
million, or $1.44 per Share, in 2012, reflecting higher current taxes
partially offset by a higher realized selling price and lower Crown
royalties. 
The second quarter 2013 realized selling price averaged $100.90 per
barrel compared with $90.59 per barrel in the 2012 second quarter,
primarily due to an improvement in the SCO differential to WTI. On a
year-to-date basis, the 2013 realized selling price averaged $98.56
per barrel compared with $94.13 per barrel in 2012, primarily due to
an improvement in the SCO differential to WTI partially offset by a
lower WTI oil price. 
Syncrude production in the 2013 second quarter totalled 24.8 million
barrels, or 273,100 barrels per day, a 14 per cent increase from
second quarter 2012 production of 21.7 million barrels, or 238,500
barrels per day. Production volumes in the second quarter of 2013
reflect the start of turnarounds on Coker 8-1 and the LC Finer and
unplanned outages in extraction units, while 2012 second quarter
production volumes reflect full turnarounds on Coker 8-3 and the
Vacuum Distillation Unit. Net to the Corporation, sales volumes
increased to 9.1 million barrels, or 100,100 barrels per day, in the
2013 second quarter from 8.1 million barrels, or 89,500 barrels per
day, in the 2012 second quarter. 
On a year-to-date basis, Syncrude production in 2013 totalled 48.3
million barrels, or 266,800 barrels per day, compared with 48.5
million barrels, or 266,700 barrels per day in 2012. Production
volumes in 2013 reflect the start of the Coker 8-1 and LC Finer
turnarounds and unplanned outages in extraction and hydrotreating
units. Production volumes in 2012 reflect the full Coker 8-3 and
Vacuum Distillation Unit turnarounds and unplanned maintenance on
Coker 8-1. Net to the Corporation, sales volumes totalled 17.7
million barrels, or 97,900 barrels per day, in the first half of 2013
compared with 18.0 million barrels, or 98,800 barrels per day, in the
comparative 2012 period. 
Current taxes increased in 2013 primarily because tax pools and the
partnership structure sheltered a portion of 2012 income from current
taxes. The decrease in Crown royalties in the first half of 2013
reflects increases in deductible capital expenditures. 
Net Income 
Net income increased to $219 million, or $0.45 per Share, in the
second quarter of 2013 from $101 million, or $0.21 per Share, in the
second quarter of 2012, reflecting a higher realized selling price
and higher sales volumes partially offset by higher taxes in 2013. 
On a year-to-date basis, net income decreased to $396 million, or
$0.82 per Share, in 2013 from $419 million, or $0.86 per Share, in
2012, reflecting a larger foreign exchange loss, primarily as a
result of revaluations of our U.S. dollar-denominated debt, higher
depreciation expense and lower sales volumes, partially offset by a
higher realized selling price and lower Crown royalties in 2013. 
The following table shows the components of net income per barrel of
SCO: 


 
                      Three Months Ended             Six Months Ended       
                           June 30                       June 30            
($ per barrel)                                                              
 (1)                 2013      2012    Change      2013      2012    Change 
----------------------------------------------------------------------------
                                                                            
Sales net of                                                                
 crude oil                                                                  
 purchases and                                                              
 transportation                                                             
 expense         $ 100.96  $  90.88  $  10.08  $  98.63  $  94.38  $   4.25 
Operating                                                                   
 expense           (43.23)   (50.25)     7.02    (42.24)   (40.63)    (1.61)
Crown royalties     (3.03)    (2.06)    (0.97)    (2.86)    (6.25)     3.39 
----------------------------------------------------------------------------
                 $  54.70  $  38.57  $  16.13  $  53.53  $  47.50  $   6.03 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Development                                                                 
 expense(2)      $  (4.16) $  (3.10) $  (1.06) $  (3.58) $  (2.79) $  (0.79)
Administration                                                              
 and insurance                                                              
 expenses           (0.87)    (1.15)     0.28     (1.31)    (0.97)    (0.34)
Depreciation and                                                            
 depletion                                                                  
 expense           (11.26)   (11.48)     0.22    (12.68)   (10.48)    (2.20)
Net finance                                                                 
 expense            (1.30)    (2.54)     1.24     (1.43)    (1.74)     0.31 
Foreign exchange                                                            
 gain (loss)        (4.99)    (3.22)    (1.77)    (4.13)    (0.55)    (3.58)
Tax expense         (8.03)    (4.70)    (3.33)    (7.99)    (7.67)    (0.32)
----------------------------------------------------------------------------
                   (30.61)   (26.19)    (4.42)   (31.12)   (24.20)    (6.92)
----------------------------------------------------------------------------
Net income per                                                              
 barrel          $  24.09  $  12.38  $  11.71  $  22.41  $  23.30  $  (0.89)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales volumes                                                               
 (mmbbls)(3)          9.1       8.1       1.0      17.7      18.0      (0.3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Unless otherwise specified, the per barrel measures in this MD&A have    
 been derived by dividing the relevant item by sales volumes in the period. 
(2)Previously referred to as non-production expenses.                       
(3) Sales volumes, net of purchased crude oil volumes.                      

 
Sales Net of Crude Oil Purchases and Transportation Expense 


 
                     Three Months Ended              Six Months Ended       
                           June 30                       June 30            
($ millions,                                                                
 except where                                                               
 otherwise                                                                  
 noted)              2013   2012(4)    Change      2013   2012(4)    Change 
----------------------------------------------------------------------------
                                                                            
Sales(1)        $   1,036  $    825  $    211  $  1,997  $  1,899  $     98 
Crude oil                                                                   
 purchases           (101)      (77)      (24)     (224)     (185)      (39)
Transportation                                                              
 expense              (14)       (8)       (6)      (24)      (18)       (6)
---------------------------------------------------
-------------------------
                $     921  $    740  $    181  $  1,749  $  1,696  $     53 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales                                                                       
 volumes(2)                                                                 
  Total                                                                     
   (mmbbls)           9.1       8.1       1.0      17.7      18.0      (0.3)
  Daily average                                                             
   (bbls)         100,094    89,460    10,634    97,901    98,784      (883)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Realized SCO                                                                
 selling                                                                    
 price(3)                                                                   
 (average       $  100.90  $  90.59  $  10.31  $  98.56  $  94.13  $   4.43 
 $Cdn/bbl)                                                                  
---------------                                                             
---------------                                                             
                                                                            
West Texas                                                                  
 Intermediate                                                               
 ("WTI")                                                                    
 (average       $   94.17  $  93.35  $   0.82  $  94.26     98.15  $  (3.89)
 $US/bbl)                                                $                  
                                                                            
                                                                            
SCO premium                                                                 
 (discount) to                                                              
 WTI (weighted                                                              
 average        $    4.69  $  (5.31) $  10.00  $   2.85  $  (5.62) $   8.47 
 $Cdn/bbl)                                                                  
                                                                            
Average foreign                                                             
 exchange rate  $    0.98  $   0.99  $  (0.01) $   0.98  $   0.99  $  (0.01)
 ($US/$Cdn)                                                                 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Sales include sales of purchased crude oil and sulphur.                  
(2)Sales volumes, net of purchased crude oil volumes.                       
(3)SCO sales net of crude oil purchases and transportation expense divided  
 by sales volumes, net of purchased crude oil volumes.                      
(4)During the fourth quarter of 2012, the Corporation completed a review of 
 the presentation of crude oil purchase and sales transactions and          
 determined that certain transactions previously reported on a gross basis  
 (sales presented gross of crude oil purchases and transportation expense)  
 are more appropriately reflected on a net basis (crude oil purchases       
 and/or transportation expense are netted against sales). Prior period      
 comparative amounts have been reclassified for comparability with the      
 current period presentation. The impact is as follows:                     
                                                                            
                                  Three months ended       Six months ended 
                                       June 30, 2012          June 30, 2012 
($ millions)                      Increase (decrease)    Increase (decrease)
----------------------------------------------------------------------------
Sales                          $                 (57) $                (120)
Crude oil purchases                              (57)                  (121)
Transportation expense                             -                      1 
----------------------------------------------------------------------------
Sales net of crude oil                                                      
 purchases and transportation                                               
 expense                       $                   -  $                   - 
----------------------------------------------------------------------------

 
The $181 million, or 24 per cent, increase in second quarter 2013
sales, net of crude oil purchases and transportation expense,
reflects a higher realized selling price and higher sales volumes
relative to the 2012 second quarter. 
The second quarter 2013 realized selling price increased by $10.31
per barrel, reflecting a $10.00 per barrel improvement in the
weighted-average SCO differential to WTI, a U.S. $0.82 per barrel
increase in WTI oil prices, and a weaker Canadian dollar. 
Second quarter 2013 sales volumes, which averaged 100,100 barrels per
day, were impacted by the start of the Coker 8-1 and LC Finer
turnarounds and unplanned outages in extraction units while second
quarter 2012 sales volumes, which averaged 89,500 barrels per day,
were impacted by the full Coker 8-3 and Vacuum Distillation Unit
turnarounds. 
The $53 million, or three per cent, increase in year-to-date 2013
sales, net of crude oil purchases and transportation expense,
primarily reflects a higher realized selling price. Sales volumes
were similar in both periods. 
The realized selling price for the firs
t half of 2013 increased $4.43
per barrel, as an $8.47 per barrel improvement in the
weighted-average SCO differential to WTI and a weaker Canadian dollar
more than offset a U.S. $3.89 per barrel decrease in WTI oil prices. 
Sales volumes for the first half of 2013, which averaged 97,900
barrels per day, were impacted by the Coker 8-1 and LC Finer
turnarounds, as well as unplanned outages in extraction and
hydrotreating units, while sales volumes for the comparative 2012
period, which averaged 98,800 barrels per day, were impacted by the
Coker 8-3 and Vacuum Distillation Unit turnarounds and unplanned
maintenance on Coker 8-1. 
Both WTI and the SCO differential to WTI reflect supply/demand
fundamentals for inland North American light crude oil. Increasing
North American production of light crude oil, and refinery
modifications that enable processing of heavier crude oils, can push
light crude sales, including SCO, to more distant refineries, thereby
increasing transportation costs and exposing COS' product to
supply/demand factors in different markets. A number of pipelines in
both Canada and the United States are at, or near, capacity and any
pipeline apportionments can exacerbate this situation by restricting
the ability of SCO and other crude oils to reach preferred markets.
However, strong demand from customers and increases in rail shipments
of inland crude to coastal refineries can offset these forces. These
supply and demand dynamics create price volatility that is likely to
persist for several years until additional pipeline or other delivery
capacity is available to deliver crude oil from Western Canada to
Cushing, Oklahoma, the U.S. Gulf Coast, or the Canadian East or West
Coasts. 
The Corporation 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
arrangements. Sales include the sale of purchased crude oil while the
cost of these purchases is included in crude oil purchases and
transportation expense. Crude oil purchases were higher in the second
quarter and first half of 2013, relative to the comparative 2012
periods, reflecting additional purchased volumes to support
unanticipated production shortfalls and to facilitate certain
transportation arrangements.  
Operating Expenses 
The following table breaks down operating expenses into their major
components: 


 
                                           Three Months Ended               
                                                 June 30                    
                                      2013                    2012          
                              $ millions   $ per bbl  $ millions   $ per bbl
----------------------------------------------------------------------------
                                                                            
Production and                                                              
 maintenance(1)              $       327 $     35.90 $       350 $     43.05
Natural gas and diesel                                                      
 purchases(2)                         38        4.22          25        3.01
Syncrude pension and                                                        
 incentive compensation               19        2.05          23        2.87
Other(3)                              10        1.06          11        1.32
----------------------------------------------------------------------------
Total operating expenses     $       394 $     43.23 $       409 $     50.25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
                                            Six Months Ended                
                                                 June 30                    
                                      2013                    2012          
                              $ millions   $ per bbl  $ millions   $ per bbl
----------------------------------------------------------------------------
                                                                            
Production and                                                              
 maintenance(1)              $       609 $     34.34 $       605 $     33.69
Natural gas and diesel                                                      
 purchases(2)                         83        4.66          61        3.38
Syncrude pension and                                                        
 incentive compensation               40        2.27          43        2.41
Other(3)                              17        0.97          21        1.15
----------------------------------------------------------------------------
Total operating expenses     $       749 $     42.24 $       730 $     40.63
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 

 
(1) Includes non-major turnaround costs. Major turnaround costs are         
capitalized as property, plant and equipment.                               
(2) Includes costs to purchase natural gas used to produce energy and       
hydrogen and diesel consumed as fuel.                                       
(3) Includes fees for management services provided by Imperial Oil          
Resources, insurance premiums, and greenhouse gas emissions levies.         

 
The decrease in total operating expenses in the second quarter of
2013 reflects less maintenance activity, partially offset by higher
natural gas prices. The increase in total operating expenses in the
first half of 2013 reflects higher natural gas prices. 
Per-barrel operating expenses are also impacted by sales volumes,
which were higher in the second quarter of 2013, and similar in the
first half of 2013, relative to the comparative 2012 periods.  
The following table shows operating expenses per barrel of bitumen
and SCO. The information allocates costs to bitumen production and
upgrading on the basis used to determine Crown royalties. 


 
                                          Three Months Ended                
                                               June 30                      
                                    2013                    2012(3)         
----------------------------------------------------------------------------
($ per barrel)                 Bitumen         SCO      Bitumen         SCO 
----------------------------------------------------------------------------
Bitumen production         $     28.13 $     32.26  $     34.35 $     37.85 
Internal fuel                                                               
 allocation(1)                    2.68        3.07         2.38        2.62 
----------------------------------------------------------------------------
Total bitumen production                                                    
 expenses                  $     30.81 $     35.33  $     36.73 $     40.47 
----------------------------------------------------------------------------
                                                                            
Upgrading(2)                           $     10.97              $     12.40 
Less: internal fuel                                                         
 allocation(1)                               (3.07)                   (2.62)
----------------------------------------------------------------------------
Total upgrading expenses               $      7.90              $      9.78 
----------------------------------------------------------------------------
                                                                            
Total operating expenses               $     43.23              $     50.25 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(thousands of barrels per                                                   
 day)                                                                       
----------------------------------------------------------------------------
Syncrude production                                                         
 volumes                           313         273          263         239 
Canadian Oil Sands sales                                                    
 volumes                                       100                       89 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
                                           Six Months Ended                 
                                               June 30                      
                                    2013                    2012(3)         
-----------------------------
-----------------------------------------------
($ per barrel)                 Bitumen         SCO      Bitumen         SCO 
----------------------------------------------------------------------------
Bitumen production         $     27.28 $     32.31  $     26.06 $     30.28 
Internal fuel                                                               
 allocation(1)                    2.67        3.16         2.24        2.60 
----------------------------------------------------------------------------
Total bitumen production                                                    
 expenses                  $     29.95 $     35.47  $     28.30 $     32.88 
----------------------------------------------------------------------------
                                                                            
Upgrading(2)                           $      9.93              $     10.35 
Less: internal fuel                                                         
 allocation(1)                               (3.16)                   (2.60)
----------------------------------------------------------------------------
Total upgrading expenses               $      6.77              $      7.75 
----------------------------------------------------------------------------
                                                                            
Total operating expenses               $     42.24              $     40.63 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(thousands of barrels per                                                   
 day)                                                                       
----------------------------------------------------------------------------
Syncrude production                                                         
 volumes                           316         267          310         267 
Canadian Oil Sands sales                                                    
 volumes                                        98                       99 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Reflects energy generated by the upgrader that is used in the bitumen    
production process and is valued by reference to natural gas and diesel     
prices. Natural gas prices averaged $3.41 per GJ and $3.20 per GJ in the    
three and six months ended June 30, 2013, respectively, and $1.79 per GJ and
$2.04 per GJ in the three and six months ended June 30, 2012, respectively. 
Diesel prices averaged $0.87 per litre and $0.89 per litre in the three and 
six months ended June 30, 2013, respectively, and $0.83 per litre and $0.89 
per litre in the three and six months ended June 30, 2012, respectively.    
(2)Upgrading expenses include the production and maintenance expenses       
associated with processing and upgrading bitumen to SCO.                    
(3)Certain comparative period amounts have been restated to conform to the  
current period presentation.                                                

 
Crown Royalties 
Crown royalties increased to $28 million, or $3.03 per barrel, in the
second quarter of 2013, from $16 million, or $2.06 per barrel, in the
second quarter of 2012 due to higher bitumen volumes and prices
partially offset by increases in deductible capital expenditures. On
a year-to-date basis, Crown royalties decreased to $51 million, or
$2.86 per barrel, in 2013 from $112 million, or $6.25 per barrel, in
the comparative 2012 period due primarily to increases in deductible
capital expenditures in 2013. The higher capital expenditures in 2013
reflect spending on capital projects to replace or relocate Syncrude
mine trains and to support tailings management plans. 
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 reference price adjusted to reflect quality and
location differences between Syncrude's bitumen and the Canadian
reference price bitumen. In addition, the agreement provides that a
minimum bitumen value, or "floor price", may be imposed in
circumstances where Canadian heavy oil prices are temporarily
suppressed relative to North American heavy oil prices. 
Canadian Oil Sands' share of the royalties recognized for the period
from January 1, 2009 to June 30, 2013 reflect management's best
estimate of both reasonable quality and transportation deductions and
adjustments to reflect the "floor price". However, the Syncrude
owners and the Alberta government are disputing the basis for the
quality, transportation and "floor price" adjustments. Under
alternate assumptions, Canadian Oil Sands' share of Crown royalties
for this period could be as much as $60 million (on an after-tax
basis) more than the amounts recognized. 
The Syncrude owners and the Alberta government continue to discuss
these matters, but if such discussions do not result in an agreed
upon solution, either party may seek judicial determination of the
matter. The cumulative impact, if any, of such discussions or
judicial determination, as applicable, would be recognized and impact
both net income and cash flow from operations accordingly. 
Development Expenses 
Development expenses totalled $37 million and $63 million in the
second quarter and first half of 2013, respectively, compared with
$26 million and $50 million in the comparative 2012 periods.
Development expenses consist primarily of expenditures relating to
capital programs, which are expensed, such as pre-feasibility
engineering, technical and support services, research, evaluation
drilling and regulatory and stakeholder consultation expenditures.
Development expenses can vary from period to period depending on the
number of projects underway and the development stage of the
projects. 
Depreciation and Depletion Expense  
Depreciation and depletion expense increased to $103 million and $225
million in the second quarter and first half of 2013, respectively,
from $93 million and $188 million in the comparative 2012 periods,
reflecting: 


 
--  changes made to the estimated useful lives of certain assets; and 
--  new depreciation charges for assets related to the Syncrude Emissions
    Reduction (SER) project. 

 
Net Finance Expense 


 
                                           Three Months                     
                                              Ended        Six Months Ended 
                                             June 30           June 30      
($ millions)                                2013     2012     2013     2012 
----------------------------------------------------------------------------
                                                                            
Interest costs on long-term debt(1)      $    31  $    30  $    57  $    51 
  Less capitalized interest on long-term                                    
   debt                                      (28)     (21)     (51)     (41)
----------------------------------------------------------------------------
Interest expense on long-term debt       $     3  $     9  $     6  $    10 
Interest expense on employee future                                         
 benefits                                      4        4        8        8 
Accretion of asset retirement obligation       6        7       12       13 
----------------------------------------------------------------------------
Net finance expense                      $    13  $    20  $    26  $    31 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                               
             
(1) Interest costs on long-term debt are net of interest income of $3       
 million and $8 million for the three and six months ended June 30, 2013    
 and $3 million and $5 million for the three and six months ended June 30,  
 2012, respectively.                                                        

 
Interest costs on long-term debt were higher in the first half of
2013 relative to the comparative 2012 period as a result of the U.S.
$700 million debt issued on March 29, 2012. Interest expense on
long-term debt is lower in the second quarter and first half of 2013,
relative to the comparative 2012 periods, because a higher portion of
interest costs were capitalized in 2013 as cumulative capital
expenditures on qualifying assets rose. 
Foreign Exchange (Gain) Loss 


 
                                           Three Months                     
                                              Ended        Six Months Ended 
                                             June 30           June 30      
($ millions)                                2013     2012     2013     2012 
----------------------------------------------------------------------------
                                                                            
Foreign exchange (gain) loss - long-term                                    
 debt                                    $    65  $    36  $   102  $    16 
Foreign exchange (gain) loss - other         (20)     (10)     (29)      (6)
----------------------------------------------------------------------------
Total foreign exchange (gain) loss       $    45  $    26  $    73  $    10 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
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./Cdn dollar exchange rates. 
The foreign exchange losses on long-term debt in 2013 were the result
of a weakening Canadian dollar to U.S. $0.95 at June 30, 2013 from
U.S. $0.98 at March 31, 2013 and U.S. $1.01 at December 31, 2012. The
foreign exchange losses in 2012 were mainly the result of a weakening
Canadian dollar from U.S. $1.00 at March 29, 2012, when U.S. $700
million of Senior Notes were issued, to U.S. $0.98 at June 30, 2012. 
The foreign exchange gains on other items reflect the impact of the
weakening Canadian dollar on cash held in U.S. dollars and U.S.
dollar-denominated accounts receivable balances. 
Tax Expense 


 
                                             Three Months                   
                                                Ended       Six Months Ended
                                               June 30          June 30     
($ millions)                                  2013     2012    2013     2012
----------------------------------------------------------------------------
                                                                            
Current tax expense                        $    90  $    20 $   180  $    20
Deferred tax expense (recovery)                (16)      19     (38)     118
----------------------------------------------------------------------------
Total tax expense                          $    74  $    39 $   142  $   138
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Total tax expense increased in the 2013 second quarter because
earnings before tax were higher than in the 2012 second quarter. 
Current taxes increased in 2013 primarily because: 


 
--  tax pools sheltered 2012 income from current taxes; and 
--  taxes on a portion of income generated in the Corporation's partnership
    in 2012 were deferred to 2013. 

 
Asset Retirement Obligation 


 
                                                                    June 30 
Six months ended ($ millions)                                          2013 
----------------------------------------------------------------------------
                                                                            
Asset retirement obligation, beginning of period                $     1,102 
Increase in risk-free interest rate                                    (170)
Accretion expense                                                        12 
Reclamation expenditures                                                (39)
----------------------------------------------------------------------------
Asset retirement obligation, end of period                      $       905 
Less current portion                                                    (44)
----------------------------------------------------------------------------
Non-current portion                                             $       861 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Canadian Oil Sands' asset retirement obligation decreased from $1,102
million at December 31, 2012 to $905 million at June 30, 2013, due
primarily to a 75 basis point increase in the interest rate used to
discount future reclamation and closure expenditures, as well as $39
million of reclamation spending during the period. 
Pension and Other Post-Employment Benefit Plans 
The Corporation's share of the estimated unfunded portion of Syncrude
Canada Ltd.'s ("Syncrude Canada") pension and other post-employment
benefit plans decreased to $412 million at June 30, 2013 from $438
million at December 31, 2012, reflecting contributions to the plans
in excess of the current period costs. 
Summary of Quarterly Results 


 
                                    2013                   2012(6)         
                                    Q2          Q1          Q4          Q3 
---------------------------------------------------------------------------
                                                                           
Sales(1)($ millions)       $       921 $       828 $       929 $       941 
                                                                           
Net income ($ millions)    $       219 $       177 $       219 $       335 
  Per Share, Basic &                                                       
   Diluted                 $      0.45 $      0.37 $      0.45 $      0.69 
                                                                           
Cash flow from                                                             
 operations(2) ($                                                          
 millions)                 $       343 $       275 $       418 $       470 
  Per Share(2)             $      0.71 $      0.57 $      0.86 $      0.97 
                                                                           
Dividends ($ millions)     $       169 $       170 $       169 $       170 
  Per Share                $      0.35 $      0.35 $      0.35 $      0.35 
                                                                           
Daily average sales                                                        
 volumes(3) (bbls)             100,094      95,683     111,669     113,331 
                                                                           
Realized SCO selling price                                                 
 ($/bbl)                   $    100.90 $     96.11 $     89.99 $     89.89 
                                                                           
WTI(4) (average $US/bbl)   $     94.17 $     94.36 $     88.23 $     92.20 
                                                                           
SCO premium (discount) to                                                  
 WTI ($/bbl)               $      4.69 $      0.88 $      2.43 $     (2.09)
                                                                           
Operating expenses(5)           
                                           
 ($/bbl)                   $     43.23 $     41.20 $     38.76 $     36.07 
                                                                           
Purchased natural gas                                                      
 price ($/GJ)              $      3.41 $      2.95 $      3.02 $      2.00 
                                                                           
Foreign exchange rates                                                     
 ($US/$Cdn)                                                                
  Average                  $      0.98 $      0.99 $      1.01 $      1.00 
  Quarter-end              $      0.95 $      0.98 $      1.01 $      1.02 
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 
                                   2012(6)                   2011(6)        
                                    Q2           Q1           Q4          Q3
----------------------------------------------------------------------------
                                                                            
Sales(1)($ millions)       $       740  $       956  $       884 $       989
                                                                            
Net income ($ millions)    $       101  $       318  $       232 $       242
  Per Share, Basic &                                                        
   Diluted                 $      0.21  $      0.66  $      0.48 $      0.50
                                                                            
Cash flow from                                                              
 operations(2) ($                                                           
 millions)                 $       245  $       454  $       363 $       512
  Per Share(2)             $      0.51  $      0.94  $      0.75 $      1.06
                                                                            
Dividends ($ millions)     $       170  $       145  $       146 $       145
  Per Share                $      0.35  $      0.30  $      0.30 $      0.30
                                                                            
Daily average sales                                                         
 volumes(3) (bbls)              89,460      108,108       91,259     109,260
                                                                            
Realized SCO selling price                                                  
 ($/bbl)                   $     90.59  $     97.07  $    104.78 $     97.89
                                                                            
WTI(4) (average $US/bbl)   $     93.35  $    103.03  $     94.06 $     89.54
                                                                            
SCO premium (discount) to                                                   
 WTI ($/bbl)               $     (5.31) $     (5.89) $      8.51 $      9.77
                                                                            
Operating expenses(5)                                                       
 ($/bbl)                   $     50.25  $     32.68  $     46.88 $     37.19
                                                                            
Purchased natural gas                                                       
 price ($/GJ)              $      1.79  $      2.23  $      3.19 $      3.51
                                                                            
Foreign exchange rates                                                      
 ($US/$Cdn)                                                                 
  Average                  $      0.99  $      1.00  $      0.98 $      1.02
  Quarter-end              $      0.98  $      1.00  $      0.98 $      0.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 (1)Sales after crude oil purchases and transportation expense.             
(2)Cash flow from operations and cash flow from operations per Share are    
additional GAAP financial measures and are defined in the "Additional GAAP  
Financial Measures" section of this MD&A.                                   
(3)Daily average sales volumes net of crude oil purchases.                  
(4)Pricing obtained from Bloomberg.                                         
(5)Derived from operating expenses, as reported on the Consolidated         
Statements of Income and Comprehensive Income, divided by sales volumes     
during the period.                                                          
(6)Net income and operating expenses in 2012 have been adjusted to reflect  
the amendments to International Accounting Standard ("IAS") 19, Employee    
Benefits. Net income and operating expenses in 2011 have not been adjusted. 
Additional information on the amendments to IAS 19 is provided in the       
"Changes in Accounting Policies" section of this MD&A.                      

 
During the last eight quarters, the following items have had a
significant impact on the Corporation's financial results:  


 
--  fluctuations in realized selling prices have affected the Corporation's
    sales and Crown royalties. Monthly average WTI prices have ranged from
    U.S. $82 per barrel to U.S. $106 per barrel, and the monthly average
    differentials between our realized selling price and Canadian dollar WTI
    prices have ranged from a $14 per barrel premium to a $17 per barrel
    discount; 
--  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 realized selling prices; 
--  planned and unplanned maintenance activities have reduced quarterly
    production volumes and revenues and increased operating expenses; 
--  fluctuations in natural gas prices have affected operating expenses and
    Crown royalties; 
--  increased spending on capital projects to replace or relocate Syncrude
    mining trains and to support tailings management plans has reduced Crown
    royalties; and 
--  increases in current taxes in 2013 have reduced cash flow from
    operations. Prior to 2013, tax pools sheltered the Corporation's income
    from significant current taxes. In addition, taxes on a portion of the
    income generated in the Corporation's partnership in 2012 were deferred
    to 2013. 

 
Quarterly variances in net income and cash flow from operations are
caused mainly by fluctuations in realized selling prices, production
and sales volumes, operating expenses, natural gas prices, and
current tax expense. Net income is also impacted by foreign exchange
gains and losses, depreciation and depletion, and deferred tax
expense. The dividends paid to Shareholders are also dependent on the
factors impacting cash flow from operations as well as the amount and
timing of capital expenditures. 
While the supply/demand balance for crude oil affects selling prices,
the impact of this relationship 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.
Technological developments in North American natural gas production
have significantly increased production levels and impacted natural
gas prices. These conditions may persist for the next several years. 
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
outages cannot be precisely scheduled and unplanned outages may
occur. The costs of major turnarounds are capitalized as property,
plant and equipment and depreciated over the period until the next
scheduled turnaround. The costs of all other turnarounds an
d
maintenance activities are expensed in the period incurred, which can
result in volatility in quarterly operating expenses. All turnarounds
and maintenance activities impact per barrel operating expenses
because sales volumes are lower in the periods when this work is
occurring. 
Capital Expenditures 


 
                                              Three Months                  
                                                  Ended     Six Months Ended
                                                 June 30         June 30    
($ millions)                                    2013    2012    2013    2012
----------------------------------------------------------------------------
                                                                            
Major Projects                                                              
                                                                            
  Mildred Lake Mine Train Replacement        $   115 $    88 $   228 $   131
  Reconstruct crushers, surge facilities,                                   
   and slurry prep facilities to support                                    
   tailings storage requirements                                            
                                                                            
  Aurora North Mine Train Relocation              57      23      88      31
  Relocate crushers, surge facilities, and                                  
   slurry prep facilities to support                                        
   tailings storage requirements                                            
                                                                            
  Aurora North Tailings Management                32      20      45      39
  Construct a composite tails (CT) plant at                                 
   the Aurora North mine to process tailings                                
                                                                            
  Centrifuge Tailings Management                  47      12      84      19
  Construct a centrifuge plant at the                                       
   Mildred Lake mine to process tailings                                    
                                                                            
----------------------------------------------------------------------------
Capital expenditures on major projects       $   251 $   143 $   445 $   220
----------------------------------------------------------------------------
                                                                            
Regular maintenance                                                         
  Capitalized turnaround costs               $    19 $    61 $    21 $    67
  Other(1)                                        71      67     120     105
----------------------------------------------------------------------------
Capital expenditures on regular maintenance  $    90 $   128 $   141 $   172
----------------------------------------------------------------------------
                                                                            
Capitalized interest                         $    28 $    21 $    51 $    41
----------------------------------------------------------------------------
Total capital expenditures                   $   369 $   292 $   637 $   433
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1) Other regular maintenance capital includes expenditures to relocate     
 tailings facilities as well as other infrastructure projects.              

 
Capital expenditures increased to $369 million and $637 million in
the second quarter and first half of 2013, respectively, from $292
million and $433 million in the comparative 2012 periods, primarily
due to spending on the major projects at Syncrude. More information
on the major projects is provided in the "Outlook" section of this
MD&A. 
The decrease in capitalized turnaround costs reflects differences in
the timing of turnaround activity. As the Coker 8-1 turnaround
commenced in early June 2013 and is expected to continue until early
August, only a portion of the total costs are reflected in the 2013
second quarter. By comparison, the Coker 8-3 turnaround commenced in
early May 2012 and was substantially complete at June 30, 2012. As
such, most of the costs were recognized in the 2012 second quarter. 
The increase in other regular maintenance capital costs in the first
half of 2013, relative to the 2012 comparative period, reflects
increased spending on projects to relocate tailings facilities. 
The increase in capitalized interest costs reflects higher cumulative
capital expenditures on qualifying assets. 
Contractual Obligations and Commitments  
Canadian Oil Sands' contractual obligations and commitments are
summarized in the 2012 annual MD&A and include future cash payments
that the Corporation is required to make under existing contractual
arrangements entered into directly or as a 36.74 per cent owner in
Syncrude. There are no significant new contractual obligations or
commitments relative to the 2012 annual disclosure. 
Dividends 
On July 30, 2013, the Corporation declared a quarterly dividend of
$0.35 per Share for a total dividend of approximately $170 million.
The dividend will be paid on August 30, 2013 to shareholders of
record on August 23, 2013. During the first half of 2013, the
Corporation paid dividends to shareholders totalling $339 million, or
$0.70 per Share. 
Dividend payments are set quarterly by the Board of Directors in the
context of current and expected crude oil prices, economic
conditions, Syncrude's operating performance, and the Corporation's
capacity to finance operating and investing obligations. Dividend
levels are established with the intent of absorbing short-term market
volatility over several quarters. Dividend levels also recognize our
intention to fund the current major projects primarily with cash flow
from operations and existing cash balances, while maintaining a
strong balance sheet to reduce exposure to potential oil price
declines, capital cost increases or major operational upsets. 
Liquidity and Capital Resources 


 
                                                       June 30  December 31 
As at ($ millions, except % amounts)                      2013         2012 
----------------------------------------------------------------------------
Long-term debt(1),(2)                              $     1,897  $     1,794 
Cash and cash equivalents                               (1,416)      (1,553)
----------------------------------------------------------------------------
Net debt(1),(3)                                    $       481  $       241 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity                               $     4,573  $     4,515 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total net capitalization(1),(4)                    $     5,054  $     4,756 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capitalization(1),(5)                        $     6,470  $     6,309 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net debt-to-total net capitalization(1),(6) (%)             10            5 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt-to-total capitalization(1),(7)
 (%)           29           28 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1) Additional GAAP financial measure.                                      
(2) Includes current and non-current portions of long-term debt.            
(3) Long-term debt less cash and cash equivalents.                          
(4) Net debt plus Shareholders' equity.                                     
(5) Long-term debt plus Shareholders' equity.                               
(6) Net debt divided by total net capitalization.                           
(7) Long-term debt divided by total capitalization.                         

 
Net debt, comprised of current and non-current portions of long-term
debt less cash and cash equivalents, increased to $481 million at
June 30, 2013 from $241 million at December 31, 2012, as existing
cash balances were used to fund capital expenditures and dividend
payments in excess of cash flow from operations. In addition, a
weakening Canadian dollar from December 31, 2012 to June 30, 2013
increased the Canadian equivalent value of Canadian Oil Sands'
long-term debt, all of which is denominated in U.S. dollars. As a
result, net debt-to-total net capitalization increased to 10 per cent
at June 30, 2013 from five per cent at December 31, 2012. 
Shareholders' equity increased to $4,573 million at June 30, 2013
from $4,515 million at December 31, 2012, as net income exceeded
dividends in the first half of 2013. 
During the second quarter of 2013, Canadian Oil Sands extended the
terms of its credit facilities by one year. The $1,500 million
operating credit facility was extended to June 1, 2017 and the $40
million extendible revolving term credit facility was extended to
June 30, 2015. No amounts were drawn against these facilities at June
30, 2013 or December 31, 2012. 
The U.S. $300 million of Senior Notes, which mature on August 15,
2013, will be repaid from cash on hand at June 30, 2013. 
The Senior Notes indentures and credit facility agreements contain
certain covenants that restrict Canadian Oil Sands' ability to sell
all or substantially all of its assets or change the nature of its
business, and limit long-term debt-to-total capitalization to 55 per
cent. Canadian Oil Sands is in compliance with its debt covenants,
and with a long-term debt-to-total capitalization of 29 per cent at
June 30, 2013, a significant increase in debt or decrease in equity
would be required to negatively impact the Corporation's financial
flexibility. 
We expect cash levels to decrease over the next two years as we fund
the major capital projects and repay our August, 2013 debt maturity.
As a result, and based on the assumptions in our 2013 Outlook, our
net debt levels are expected to rise to $1 billion to $2 billion by
the end of 2014, coincident with reduced capital expenditure risk
from the substantial completion of our major capital projects. 
Shareholders' Capital and Trading Activity 
The Corporation's shares trade on the Toronto Stock Exchange under
the symbol COS. On June 30, 2013, the Corporation had a market
capitalization of approximately $9.4 billion with 484.6 million
shares outstanding and a closing price of $19.47 per Share. The
following table summarizes the trading activity for the second
quarter of 2013. 
Canadian Oil Sands Limited - Trading Activity 


 
                                  Second                                    
                                 Quarter       April         May        June
                                    2013        2013        2013        2013
----------------------------------------------------------------------------
                                                                            
Share price                                                                 
  High                       $     21.17 $     21.17 $     20.93 $     20.34
  Low                        $     18.62 $     18.62 $     19.37 $     18.85
  Close                      $     19.47 $     19.79 $     20.07 $     19.47
                                                                            
Volume of Shares traded                                                     
 (millions)                        112.7        27.2        54.3        31.2
Weighted average Shares                                                     
 outstanding (millions)            484.6       484.6       484.6       484.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Changes in Accounting Policies 
In June 2011, the International Accounting Standards Board ("IASB")
amended International Accounting Standard ("IAS") 19, Employee
Benefits, addressing the recognition and measurement of defined
benefit pension expense and termination benefits and disclosures for
all employee benefits. The key amendments are as follows: 


 
--  Actuarial gains and losses, which are now referred to as re-
    measurements, are recognized immediately in "other comprehensive income"
    ("OCI"), eliminating the choice between immediate recognition through
    net income or OCI, or deferral using the corridor approach. This change
    does not impact Canadian Oil Sands as the Corporation previously
    recognized actuarial gains and losses immediately through OCI. 
--  The expected rate of return on plan assets is no longer calculated.
    Instead, the estimated rate of return on plan assets is now the same
    rate used to accrete the discounted accrued benefit obligation. The
    interest cost component of the pension expense, which previously
    represented accretion of the discounted accrued benefit obligation, now
    represents accretion of the net accrued benefit liability (the accrued
    benefit obligation net of the fair value of plan assets). 
--  The interest cost component of pension expense, which was previously
    presented within operating expenses, is now presented within net finance
    expense. 

 
Canadian Oil Sands has applied the amendments effective January 1,
2013 in accordance with the applicable transitional provisions with
no material impact to the Corporation's financial results. Additional
information is provided in Note 3 to the unaudited consolidated
financial statements for the three and six months ended June 30, 2013
and June 30, 2012. 
2013 Outlook 


 
                                                            As of      As of
                                                          July 30   April 30
(millions of Canadian dollars, except volume and per                        
 barrel amounts)                                             2013       2013
----------------------------------------------------------------------------
                                                                            
Operating assumptions                                                       
Syncrude production (mmbbls)                                  102        105
Canadian Oil Sands sales (mmbbls)                            37.5       38.6
Sales, net of crude oil purchases and transportation  $     3,518 $    3,280
Operating expenses                                    $     1,507 $    1,482
Operating expenses per barrel                         $     40.21 $    38.41
Crown royalties                                       $       104 $      109
Current taxes                                         $       400 $      350
Cash flow from operations(1)                          $     1,260 $    1,097
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Capital expenditure assumptions                                             
Major projects                                        $       828 $      839
Regular maintenance                                   $       349 $      360
Capitalized interest                                  $       102 $       99
Total capital expenditures                            $     1,279 $    1,298
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Business environment assumptions                                            
West Texas Intermediate (U.S.$/bbl)                   $     90.00 $    85.00
Premium to average Cdn$ WTI prices (Cdn$/bbl)         $      2.00 $        -
Foreign exchange rate (U.S.$/Cdn$)                    $      0.98 $     1.00
AECO natural gas (Cdn$/GJ)                            $      3.50 $     3.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1) Cash flow from operations is an additional GAAP financial measure and is
 defined in the "Additional GAAP Financial Measures" section of this MD&A.  

 
We have increased estimated 2013 sales, net of crude oil purchases
and transportation expense, to $3,518 million due to an increase in
the forecast realized selling price partially offset by a decrease in
estimated production volumes. 
The forecast realized selling price for 2013 has increased $9 per
barrel to $94 per barrel and assumes a U.S. $90 per barrel WTI oil
price, a $2.00 per barrel SCO premium to Canadian dollar WTI, and a
foreign exchange rate of $0.98 U.S./Cdn.  
We have adjusted our 2013 Syncrude production range to 100 to 104
million barrels with a single-point estimate of 102 million barrels
(279,500 barrels per day). Net to Canadian Oil Sands, the
single-point estimate is equivalent to 37.5 million barrels (102,700
barrels per day). The production outlook reflects actual results to
date, the impact of the Coker 8-1 turnaround, with the advancement
resulting in a larger production impact, and more reliable operations
in the second half of the year. 
We estimate 2013 operating expenses of $1,507 million, or $40.21 per
barrel, reflecting actual costs incurred to date and a natural gas
price assumption of $3.50 per gigajoule. 
We estimate 2013 Crown royalties of $104 million. Mainly as a result
of capital spending on major projects, allowable deductible costs for
royalty purposes in 2013 are anticipated to exceed deemed bitumen
revenues. As a result, we are estimating minimum Crown royalties at
one per cent of gross deemed bitumen revenues (instead of 25 per cent
of net deemed bitumen revenues) in 2013. We continue to recognize the
transition and upgrader growth capital recapture royalties in 2013. 
Our estimate of 2013 current taxes has increased to $400 million,
primarily reflecting the increase in the forecast sales.  
Based on these assumptions, estimated 2013 cash flow from operations
has increased to $1,260 million, or $2.60 per Share. 
We estimate 2013 capital expenditures of $1,279 million, comprised of
$828 million of spending on major projects, $349 million in regular
maintenance of the business and other projects, and $102 million in
capitalized interest.  
We expect cash levels to decrease over the next two years as we fund
the major capital projects and repay the debt maturity in August,
2013. As a result, net debt levels are expected to rise to $1 billion
to $2 billion by the end of 2014, coincident with reduced capital
expenditure risk from the substantial completion of the major capital
projects.  
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. 
Outlook Sensitivity Analysis (July 30, 2013) 


 
                                                         Cash Flow from     
                                                           Operations       
                                                            Increase        
                                                      $ millions   $ / Share
Variable                          Annual Sensitivity     (1),(2)     (1),(2)
----------------------------------------------------------------------------
                                                                            
Syncrude operating expense                                                  
 decrease                               Cdn$1.00/bbl $        28 $      0.06
Syncrude operating expense                                                  
 decrease                             Cdn$50 million $        14 $      0.03
WTI crude oil price increase           U.S.$1.00/bbl $        29 $      0.06
Syncrude production increase          2 million bbls $        52 $      0.11
Canadian dollar weakening             U.S.$0.01/Cdn$ $        26 $      0.05
AECO natural gas price decrease          Cdn$0.50/GJ $        18 $      0.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Canadian Oil Sands anticipates recording approximately $400 million in   
 current taxes in 2013. These sensitivities are after the impact of taxes.  
(2)These sensitivities assume Canadian Oil Sands remains in minimum royalty 
 in 2013.                                                                   

 
The 2013 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 Projects 
The following tables provide cost and schedule estimates for
Syncrude's major projects. Regular maintenance capital costs for
years after 2013 will be provided on an annual basis when we disclose
the budgets for those years, and are currently estimated to average
approximately $10 per barrel over the next few years. 
Major Projects - Total Project Cost and Schedule Estimates(1) 


 
                                                          Estimated         
                                                    Total         %         
                                                     Cost  Complete   Target
                                     Total Cost  Estimate        at      In-
                                       Estimate  Accuracy  June 30,  Service
                                   ($ billions)       (%)   2013(2)     Date
----------------------------------------------------------------------------
                                                                            
Mildred Lake Mine Train Syncrude   $        4.2  +15%/-15%       55% Q4 2014
Replacement             COS share           1.6                             
                                                                            
Aurora North Mine Train Syncrude   $        1.0  +15%/-15%       80% Q1 2014
Relocation              COS share           0.4                             
                                                                            
Aurora North Tailings   Syncrude   $        0.8  +15%/-15%       90% Q4 2013
Management              COS share           0.3                             
                                                                            
Centrifuge Tailings     Syncrude   $        1.9  +15%/-15%       25% H1 2015
Management              COS share           0.7                             

 
Major Projects - Annual Spending Profile(1) 


 
                                    Spent to                                
 
                                 to Dec 31,                                
($ billions)                            2012    2013    2014    2015   Total
----------------------------------------------------------------------------
                                                                            
Syncrude                         $       2.6 $   2.4 $   2.3 $   0.6 $   7.9
Canadian Oil Sands share         $       1.0 $   0.9 $   0.9 $   0.2 $   3.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1) Major projects costs include capital expenditures, excluding capitalized
 interest, and certain development expenses.                                
(2) The estimated percentage complete is based on hours spent as a          
 percentage of total forecasted hours to project completion.                

 
The first of the two mine train relocations at Aurora North was
completed earlier this month, and the mine train is now operating at
its new site. The relocation of the second mine train is underway and
is anticipated to be complete in the fourth quarter of 2013, with
close-out and clean-up work continuing into the first quarter of
2014. 
The major projects tables contain forward-looking information and
users of this information are cautioned that the actual yearly and
total major project costs and the actual in-service dates for the
major projects may vary from the plans disclosed. The major project
cost estimates and major project target in-service dates are based on
current 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
major project costs and the major project target in-service dates to
differ materially, please refer to the Corporation's Annual
Information Form dated February 21, 2013 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         Six Months Ended     
                                 June 30                   June 30          
(millions of Canadian                                                       
 dollars, except per                                                        
 Share and Share volume                                                     
 amounts)                       2013         2012         2013         2012 
----------------------------------------------------------------------------
                                                                            
Sales (Note 17)          $     1,036  $       825  $     1,997  $     1,899 
Crown royalties (Note                                                       
 15)                             (28)         (16)         (51)        (112)
----------------------------------------------------------------------------
Revenues                 $     1,008  $       809  $     1,946  $     1,787 
----------------------------------------------------------------------------
                                                                            
Expenses                                                                    
  Operating (Note 3)     $       394  $       409  $       749  $       730 
  Development                     37           26           63           50 
  Crude oil purchases                                                       
   and transportation                                                       
   (Note 17)                     115           85          248          203 
  Administration                   6            8           16           14 
  Insurance                        2            2            8            4 
  Depreciation and                                                          
   depletion                     103           93          225          188 
----------------------------------------------------------------------------
                         $       657  $       623  $     1,309  $     1,189 
----------------------------------------------------------------------------
Earnings from operating                                                     
 activities              $       351  $       186  $       637  $       598 
  Foreign exchange loss                                                     
   (Note 9)                       45           26           73           10 
  Net finance expense                                                       
   (Notes 3 and 10)               13           20           26           31 
----------------------------------------------------------------------------
Earnings before taxes    $       293  $       140  $       538  $       557 
  Tax expense (Notes 3                                                      
   and 11)                        74           39          142          138 
----------------------------------------------------------------------------
Net income               $       219  $       101  $       396  $       419 
Other comprehensive                                                         
 loss, net of income                                                        
 taxes                                                                      
  Items not reclassified                                                    
   to net income:                                                           
    Re-measurements of                                                      
     employee future                                                        
     benefit plans                                                          
     (Notes 3 and 8)             (14)         (30)           -          (27)
  Items reclassified to                                                     
   net income:                                                              
    Derivative gains               -           (1)          (1)          (2)
----------------------------------------------------------------------------
Comprehensive income     $       205  $        70  $       395  $       390 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Weighted average Shares                                                     
 (millions)                      485          485          485          485 
Shares, end of period                                                       
 (millions)                      485          485          485          485 
                                                                            
Net income per Share                                                        
  Basic and diluted      $      0.45  $      0.21  $      0.82  $      0.86 
----------------------------------------------------------------------------
                                                                            
See Notes to Unaudited Consolidated Financial Statements                    
                                                                            
Consolidated Statements of Shareholders' Equity                             
(unaudited)                                                                 
                            Three Months Ended         Six Months Ended     
                                 June 30                   June 30          
(millions of Canadian                                                       
 dollars)                       2013         2012     
    2013         2012 
----------------------------------------------------------------------------
                                                                            
Retained earnings                                                           
  Balance, beginning of                                                     
   period                $     1,844  $     1,693  $     1,823  $     1,517 
  Net income                     219          101          396          419 
  Re-measurements of                                                        
   employee future                                                          
   benefit plans                 (14)         (30)           -          (27)
  Dividends                     (169)        (170)        (339)        (315)
----------------------------------------------------------------------------
  Balance, end of period $     1,880  $     1,594  $     1,880  $     1,594 
----------------------------------------------------------------------------
Accumulated other                                                           
 comprehensive income                                                       
  Balance, beginning of                                                     
   period                $         8  $        11  $         9  $        12 
  Reclassification of                                                       
   derivative gains to                                                      
   net income                      -           (1)          (1)          (2)
----------------------------------------------------------------------------
  Balance, end of period $         8  $        10  $         8  $        10 
----------------------------------------------------------------------------
Shareholders' capital                                                       
  Balance, beginning of                                                     
   period                $     2,674  $     2,673  $     2,673  $     2,673 
  Issuance of shares               -            -            1            - 
----------------------------------------------------------------------------
  Balance, end of period $     2,674  $     2,673  $     2,674  $     2,673 
----------------------------------------------------------------------------
Contributed surplus                                                         
  Balance, beginning of                                                     
   period                $        11  $         9  $        10  $         8 
  Share-based                                                               
   compensation                    -            -            1            1 
----------------------------------------------------------------------------
  Balance, end of period          11            9           11            9 
----------------------------------------------------------------------------
Total Shareholders'                                                         
 equity                  $     4,573  $     4,286  $     4,573  $     4,286 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See Notes to Unaudited Consolidated Financial Statements                    
                                                                            
Consolidated Balance Sheets                                                 
(unaudited)                                                                 
                                                         June 30 December 31
As at (millions of Canadian dollars)                        2013        2012
----------------------------------------------------------------------------
                                                                            
ASSETS                                                                      
Current assets                                                              
  Cash and cash equivalents                          $     1,416 $     1,553
  Accounts receivable                                        284         311
  Inventories                                                148         137
  Prepaid expenses                                             2           9
----------------------------------------------------------------------------
                                                     $     1,850 $     2,010
Property, plant and equipment, net (Note 4)                8,245       8,003
Exploration and evaluation                                    89          89
Reclamation trust                                             73          69
----------------------------------------------------------------------------
                                                     $    10,257 $    10,171
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities                                                         
  Accounts payable and accrued liabilities (Note 5)  $       766 $       704
  Current portion of long-term debt                          314         297
  Current taxes                                              164          40
  Current portion of employee future benefits                 82          76
----------------------------------------------------------------------------
                                                     $     1,326 $     1,117
Employee future benefits                                     330         362
Other liabilities (Note 6)                                    90          89
Long-term debt                                             1,583       1,497
Asset retirement obligation (Note 7)                         861       1,058
Deferred taxes                                             1,494       1,533
----------------------------------------------------------------------------
                                                     $     5,684 $     5,656
Shareholders' equity                                       4,573       4,515
----------------------------------------------------------------------------
                                                     $    10,257 $    10,171
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Commitments and Contingencies (Notes 14 and 15, respectively)               
                                                                            
See Notes to Unaudited Consolidated Financial Statements                    
                                                                            
Consolidated Statements of Cash Flows                                       
(unaudited)                                                                 
                                    Three Months Ended    Six Months Ended  
                                         June 30              June 30       
(millions of Canadian dollars)          2013       2012     2013       2012 
----------------------------------------------------------------------------
                                                                            
Cash from (used in) operating                                               
 activities                                                                 
  Net income                       $     219  $     101  $   396  $     419 
  Items not requiring an outlay of                                          
   cash                                                                     
    Depreciation and depletion           103         93 
     225        188 
    Accretion of asset retirement                                           
     obligation (Note 7)                   6          7       12         13 
    Foreign exchange loss on long-                                          
     term debt (Note 9)                   65         36      102         16 
    Deferred taxes (Note 11)             (16)        19      (38)       118 
    Share-based compensation               1          3        3          3 
  Reclamation expenditures (Note                                            
   7)                                     (6)         1      (39)       (42)
  Change in employee future                                                 
   benefits and other                    (29)       (15)     (43)       (16)
----------------------------------------------------------------------------
    Cash flow from operations      $     343  $     245  $   618  $     699 
  Change in non-cash working                                                
   capital (Note 16)                     119        117      172        229 
----------------------------------------------------------------------------
    Cash from operating activities $     462  $     362  $   790  $     928 
----------------------------------------------------------------------------
                                                                            
Cash from (used in) financing                                               
 activities                                                                 
  Issuance of senior notes         $       -  $       -  $     -  $     689 
  Issuance of shares                       -          -        1          - 
  Dividends                             (169)      (170)    (339)      (315)
----------------------------------------------------------------------------
    Cash from (used in) financing                                           
     activities                    $    (169) $    (170) $  (338) $     374 
----------------------------------------------------------------------------
                                                                            
Cash from (used in) investing                                               
 activities                                                                 
  Capital expenditures             $    (369) $    (292) $  (637) $    (433)
  Reclamation trust funding               (3)        (2)      (5)        (5)
  Change in non-cash working                                                
   capital (Note 16)                      13         18       36         36 
----------------------------------------------------------------------------
  Cash used in investing                                                    
   activities                      $    (359) $    (276) $  (606) $    (402)
----------------------------------------------------------------------------
                                                                            
Foreign exchange gain on cash and                                           
 cash equivalents held in foreign                                           
 currency                          $      11  $       -  $    17  $       - 
----------------------------------------------------------------------------
                                                                            
Increase (decrease) in cash and                                             
 cash equivalents                  $     (55) $     (84) $  (137) $     900 
Cash and cash equivalents,                                                  
 beginning of period                   1,471      1,702    1,553        718 
----------------------------------------------------------------------------
Cash and cash equivalents, end of                                           
 period                            $   1,416  $   1,618  $ 1,416  $   1,618 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Cash and cash equivalents consist                                           
 of:                                                                        
  Cash                             $     712  $     105  $   712  $     105 
  Short-term investments                 704      1,513      704      1,513 
----------------------------------------------------------------------------
                                   $   1,416  $   1,618  $ 1,416  $   1,618 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
                                                                            
Supplementary Information (Note 16)                                         
                                                                            
See Notes to Unaudited Consolidated Financial Statements                    

 
Notes to Unaudited Consolidated Financial Statements For the Three
and Six Months Ended June 30, 2013 
(Tabular amounts expressed in millions of Canadian dollars, except
where otherwise noted) 
1) Nature of Operations 
Canadian Oil Sands Limited ("Canadian Oil Sands" or the
"Corporation") was incorporated in 2010 under the laws of the
Province of Alberta, Canada pursuant to a plan of arrangement
effecting the reorganization from an income trust into a corporate
structure effective December 31, 2010. 
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 near
Fort McMurray in northern Alberta. The Syncrude Project is comprised
of open-pit oil sands mines, utilities plants, bitumen extraction
plants, and an upgrading complex that processes bitumen into
Synthetic Crude Oil ("SCO"). Syncrude is a joint operation jointly
controlled by seven owners. Decisions about Syncrude's relevant
activities require unanimous consent of the owners. Each owner takes
its proportionate share of production in kind, and funds its
proportionate share of Syncrude's operating development and capital
costs on a daily basis. The Corporation also owns 36.74 per cent of
the issued and outstanding shares of Syncrude Canada Ltd. ("Syncrude
Canada"). Syncrude Canada operates Syncrude on behalf of the owners
and is responsible for selecting, compensating, directing and
controlling Syncrude's employees, and for administering all related
employment benefits and obligations. The Corporation's investment in
Syncrude and Syncrude Canada represents its only producing asset. 
The Corporation's office is located at the following address: 2000
First Canadian Centre, 350 - 7th Avenue S.W., Calgary, Alberta,
Canada T2P 3N9. 
2) Basis of Presentation 
These unaudited interim consolidated financial statements are
prepared and reported in Canadian dollars in accordance with Canadian
generally accepted accounting principles as set out in the Handbook
of the Canadian Institute of Chartered Accountants ("CICA Handbook").
The CICA Handbook incorporates International Financial Reporting
Standards ("IFRS") and publicly accountable enterprises, such as the
Corporation, are required to apply such standards. These unaudited
interim financial statements have been prepared in accordance with
IFRS applicable to the preparation of interim financial statements
and International Accounting Standard ("IAS") 34, Interim Financial
Reporting, and the accounting policies applied in these interim
unaudited consolidated financial statements are based on IFRS as
issued, outstanding and effective on June 30, 2013. 
Certain disclosures that are normally required to be included in the
notes to the annual audited consolidated financial statements have
been conden
sed or omitted. These unaudited interim consolidated
financial statements should be read in conjunction with the
Corporation's audited consolidated financial statements and notes
thereto for the year ended December 31, 2012. 
3) Accounting Policies 
The same accounting policies and methods of computation are followed
in these unaudited interim consolidated financial statements as
compared with the most recent audited annual consolidated financial
statements for the year ended December 31, 2012 except as follows: 
Taxes 
Current taxes in interim periods are accrued based on our best
estimate of the annual effective tax rate applied to year-to-date
earnings. Current taxes accrued in one interim period may be adjusted
prospectively in a subsequent interim period if the estimate of the
annual effective tax rate changes. 
Employee Future Benefits 
In June 2011, the International Accounting Standards Board ("IASB")
amended International Accounting Standard ("IAS") 19, Employee
Benefits, addressing the recognition and measurement of defined
benefit pension expense and termination benefits and disclosures for
all employee benefits. The key amendments are as follows: 


 
--  Actuarial gains and losses, which are now referred to as re-
    measurements, are recognized immediately in "other comprehensive income"
    ("OCI"), eliminating the choice between immediate recognition through
    net income or OCI, or deferral using the corridor approach. This change
    does not impact Canadian Oil Sands as the Corporation previously
    recognized actuarial gains and losses immediately through OCI. 
--  The expected rate of return on plan assets is no longer calculated.
    Instead, the estimated rate of return on plan assets is now the same
    rate used to accrete the discounted accrued benefit obligation. The
    interest cost component of the pension expense, which previously
    represented accretion of the discounted accrued benefit obligation, now
    represents accretion of the net accrued benefit liability (the accrued
    benefit obligation net of the fair value of plan assets). 
--  The interest cost component of pension expense, which was previously
    presented within operating expenses, is now presented within net finance
    expense. 

 
Canadian Oil Sands has applied the amendments effective January 1,
2013 in accordance with the applicable transitional provisions.
Certain amounts reported in the Corporation's Consolidated Statements
of Income and Comprehensive Income have been adjusted as follows: 


 
                                                                            
                                            Three Months Ended              
                                               June 30, 2013                
                                       Before                         After 
($ millions)                      Adjustments    Adjustments    Adjustments 
----------------------------------------------------------------------------
                                                                            
Operating expenses              $         394  $           -  $         394 
Net finance expense             $           9  $           4  $          13 
Tax expense                     $          75  $          (1) $          74 
Net income                      $         222  $          (3) $         219 
Re-measurements of employee                                                 
 future benefit plans, net of                                               
 tax                            $         (17) $           3  $         (14)
                               ---------------------------------------------
Earnings per Share              $        0.46  $       (0.01) $        0.45 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
 
                                                                           
                                             Six Months Ended              
                                               June 30, 2013               
                                       Before                         After
($ millions)                      Adjustments    Adjustments    Adjustments
---------------------------------------------------------------------------
                                                                           
Operating expenses              $         749  $           -  $         749
Net finance expense             $          18  $           8  $          26
Tax expense                     $         144  $          (2) $         142
Net income                      $         402  $          (6) $         396
Re-measurements of employee                                                
 future benefit plans, net of                                              
 tax                            $          (6) $           6  $           -
                               --------------------------------------------
Earnings per Share              $        0.83  $       (0.01) $        0.82
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
                                            Three Months Ended              
                                               June 30, 2012                
                                       Before                         After 
($ millions)                      Adjustments    Adjustments    Adjustments 
----------------------------------------------------------------------------
                                                                            
Operating expenses              $         413  $          (4) $         409 
Net finance expense             $          16  $           4  $          20 
Tax expense                     $          39  $           -  $          39 
Net income                      $         101  $           -  $         101 
Re-measurements of employee                                                 
 future                                                                     
benefit plans, net of tax       $         (30) $           -  $         (30)
                               ---------------------------------------------
Earnings per Share              $        0.21  $           -  $        0.21 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
                                             Six Months Ended              
                                               June 30, 2012               
                                        Before                       After 
 ($ millions)                      Adjustments  Adjustments    Adjustments 
 --------------------------------------------------------------------------
                                                                           
 Operating expenses              $         734  $        (4) $         730 
 Net finance expense             $          23  $         8  $          31 
 Tax expense                     $         139  $        (1) $         138 
 Net income                      $         422  $        (3) $         419 
 Re-measurements of employee                                               
  future                                                                   
 benefit plans, net of tax       $         (30) $         3  $         (27)
                                -------------------------------------------
 Earnings per Share              $        0.87  $     (0.01) $        0.86 
 --------------------------------------------------------------------------
 --------------------------------------------------------------------------

 
Consolidation 
In May 2011, the IASB issued IFRS 10, Consolidated Financial
Statements; IFRS 11, Joint Arrangements, to replace International
Accounting Standard ("IAS") 31, Interests in Joint Ventures; IFRS 12,
Disclosure of Interests in Other Entities; and amendments to IAS 27,
Separate Financial Statements and IAS 28 Investments in Associates
and Joint Ventures. 
Canadian Oil Sands has applied these new standards effective January
1, 2013 in accordance with the transitional provisions. IFRS 10,
which establishes principles for the presentation and preparation of
consolidated financial statements, has not impacted Canadian Oil
Sands' financial statements or disclosures. IFRS 11 eliminates the
accounting policy choice between proportionate consolidation and
equity method accounting for joint ventures available under IAS 31
and, instead, mandates one of these two methodologies based on the
economic substance of the joint arrangement. Canadian Oil Sands has
determined that its investments in Syncrude and Syncrude Canada are
considered joint operations under the new standard and continues to
recognize its proportionate share of the assets, liabilities,
revenues, expenses, and commitments of both. IFRS 12 requires
entities to disclose information about the nature of their interests
in joint ventures, which has resulted in additional disclosures in
Note 1, Nature of Operations. 
Fair Value Measurement 
In May 2011, the IASB issued IFRS 13, Fair Value Measurements, which
establishes a single source of guidance for fair value measurements
and related disclosures. Canadian Oil Sands has applied this new
standard effective January 1, 2013 in accordance with the
transitional provisions, resulting in new fair value disclosures in
Note 13, Financial Instruments. 
Financial Instruments: Disclosures 
In December 2011, the IASB issued amendments to IFRS 7, Financial
Instruments: Disclosures, requiring entities to disclose information
about the effect, or potential effect, of netting arrangements on an
entity's financial position. Canadian Oil Sands has applied these
amendments effective January 1, 2013 in accordance with their
transitional provisions, resulting in additional disclosures in Note
13, Financial Instruments. 
Production Stripping Costs 
In October 2011, the IASB issued International Financial Reporting
Interpretations Committee ("IFRIC") Interpretation 20, Stripping
Costs in the Production Phase of a Surface Mine, which clarifies the
accounting for costs associated with waste removal in surface mining
during the production phase of a mine. Canadian Oil Sands has applied
this new interpretation effective January 1, 2013 in accordance with
the transitional provisions and there has been no impact on Canadian
Oil Sands' financial statements or disclosures. 
4) Property, Plant and Equipment, Net  


 
                                        Six Months Ended June 30, 2013    
                                                                          
                                       Upgrading                 Vehicles 
                                             and       Mining         and 
($ millions)                          Extracting    Equipment   Equipment 
--------------------------------------------------------------------------
                                                                          
Cost                                                                      
Balance at January 1, 2013          $      5,300  $     1,397 $       686 
Additions                                      -            -           6 
Change in asset retirement costs               -            -           - 
Retirements                                  (22)           -         (16)
Reclassifications(1)                          11            1           - 
--------------------------------------------------------------------------
Balance at June 30, 2013            $      5,289  $     1,398 $       676 
--------------------------------------------------------------------------
                                                                          
Accumulated depreciation                                                  
Balance at January 1, 2013          $      1,447  $       539 $       320 
Depreciation                                 109           32          26 
Retirements                                  (22)           -         (16)
Reclassifications(1)                           -            -           - 
--------------------------------------------------------------------------
Balance at June 30, 2013            $      1,534  $       571 $       330 
--------------------------------------------------------------------------
                                                                          
                                                                          
Net book value at June 30, 2013     $      3,755  $       827 $       346 
--------------------------------------------------------------------------
--------------------------------------------------------------------------
 
                                        Six Months Ended June 30, 2013     
                                                                           
                                                       Asset         Major 
                                                  Retirement    Turnaround 
($ millions)                          Buildings        Costs         Costs 
---------------------------------------------------------------------------
                                                                           
Cost                                                                       
Balance at January 1, 2013          $       324 $      1,024  $        166 
Additions                                     -            -            21 
Change in asset retirement costs              -         (170)            - 
Retirements                                   -            -           (47)
Reclassifications(1)                          5           17             - 
---------------------------------------------------------------------------
Balance at June 30, 2013            $       329 $        871  $        140 
---------------------------------------------------------------------------
                                                                           
Accumulated depreciation                                                   
Balance at January 1, 2013          $       107 $        180  $         73 
Depreciation                                  4           23            28 
Retirements                                   -            -           (47)
Reclassifications(1)                          -            -             - 
---------------------------------------------------------------------------
Balance at June 30, 2013            $       111 $        203  $         54 
---------------------------------------------------------------------------
                                                                           
                                                                           
Net book value at June 30, 2013     $       218 $        668  $         86 
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 
                                        Six Months Ended June 30, 2013      
                                                                            
                                                                            
                                      Construction           Mine           
($ millions)                           in Progress    Development     Total 
----------------------------------------------------------------------------
                                                                            
Cost                                                                        
Balance at January 1, 2013          $        1,501  $      
   392 $  10,790 
Additions                                      610              -       637 
Change in asset retirement costs                 -              -      (170)
Retirements                                      -              -       (85)
Reclassifications(1)                           (34)             -         - 
----------------------------------------------------------------------------
Balance at June 30, 2013            $        2,077  $         392 $  11,172 
----------------------------------------------------------------------------
                                                                            
Accumulated depreciation                                                    
Balance at January 1, 2013          $            -  $         121 $   2,787 
Depreciation                                     -              3       225 
Retirements                                      -              -       (85)
Reclassifications(1)                             -              -         - 
----------------------------------------------------------------------------
Balance at June 30, 2013            $            -  $         124 $   2,927 
----------------------------------------------------------------------------
                                                                            
                                                                            
Net book value at June 30, 2013     $        2,077  $         268 $   8,245 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Reclassifications are primarily transfers from construction in progress  
to other categories of property, plant and equipment when construction is   
completed and assets are available for use.                                 

 
For the three and six months ended June 30, 2013, interest costs of
$28 million and $51 million, respectively, were capitalized and
included in property, plant and equipment (three and six months ended
June 30, 2012 - $21 million and $41 million, respectively) based on a
6.5 per cent interest capitalization rate for the three and six
months ended June 30, 2013 (6.5 per cent and 6.9 per cent,
respectively, for the three and six months ended June 30, 2012). 
5) Accounts Payable and Accrued Liabilities 


 
                                                       June 30  December 31 
($ millions)                                              2013         2012 
----------------------------------------------------------------------------
                                                                            
Trade payables                                     $       551  $       498 
Crown royalties                                            221          215 
Current portion of asset retirement obligation              44           44 
Interest payable                                            31           29 
----------------------------------------------------------------------------
                                                   $       847  $       786 
Less non-current portion of Crown royalties                (81)         (82)
----------------------------------------------------------------------------
Accounts payable and accrued liabilities           $       766  $       704 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
6) Other Liabilities 


 
                                                         June 30 December 31
($ millions)                                                2013        2012
----------------------------------------------------------------------------
                                                                            
Non-current portion of Crown royalties               $        81 $        82
Other                                                          9           7
----------------------------------------------------------------------------
Other liabilities                                    $        90 $        89
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
7) Asset Retirement Obligation 
The Corporation and each of the other Syncrude owners are liable for
their share of ongoing obligations related to the reclamation and
closure of the Syncrude properties on abandonment. The Corporation
estimates reclamation and closure expenditures will be made
progressively over the next 70 years and has applied a risk-free
interest rate of 3.0 per cent at June 30, 2013 (December 31, 2012 -
2.25 per cent) in deriving the asset retirement obligation. The
risk-free rate is based on the yield for benchmark Government of
Canada long-term bonds. 


 
                                                  Six Months           Year 
                                                       Ended          Ended 
                                                     June 30    December 31 
($ millions)                                            2013           2012 
----------------------------------------------------------------------------
                                                                            
Asset retirement obligation, beginning of                                   
 period                                        $       1,102  $       1,037 
Change in risk-free interest rate                       (170)            68 
Change in estimated reclamation and closure                                 
 expenditures                                              -             25 
Accretion expense                                         12             26 
Reclamation expenditures                                 (39)           (54)
----------------------------------------------------------------------------
Asset retirement obligation, end of period     $         905  $       1,102 
Less current portion                                     (44)           (44)
----------------------------------------------------------------------------
Non-current portion                            $         861  $       1,058 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
The $170 million decrease in the asset retirement obligation due to
the change in the risk-free rate was recorded as a decrease in
property, plant and equipment. The $44 million current portion of the
asset retirement obligation is included in accounts payable and
accrued liabilities, while the $861 million non-current portion is
presented separately as a liability on the June 30, 2013 Consolidated
Balance Sheet. The total undiscounted estimated cash flows required
to settle Canadian Oil Sands' share of the asset retirement
obligation were $2,065 million at June 30, 2013 (December 31, 2012 -
$2,104 million). 
8) Employee Future Benefits 
The Corporation's share of Syncrude Canada's defined benefit and
contribution plans' costs for the three and six months ended June 30,
2013 and 2012 is based on its 36.74 per cent working interest. The
costs have been recorded in operating expenses, net finance expense
and other comprehensive loss as follows:  


 
                                     Three Months Ended   Six Months Ended  
                                           June 30             June 30      
($ millions)                              2013      2012      2013      2012
----------------------------------------------------------------------------
                                                                            
Operating expenses                   $      11 $      12 $      22 $      21
Net finance expense                          4 $       4         8 $       8
Other comprehensive loss(1)                 19        40         1        36
----------------------------------------------------------------------------
Total benefit cost                   $      34 $      56 $      31 $      65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)The other comprehensive loss is presented net of tax on the Consolidated 
 Statements of Income and Comprehensive Income.                             

 
9) Foreign Exchange 


 
                                  Three Months Ended     Six Months Ended   
                                       June 30               June 30        
($ millions)                          2013       2012       2013       2012 
----------------------------------------------------------------------------
                                                                            
Foreign exchange (gain) loss -                                              
 long-term debt                  $      65  $      36  $     102  $      16 
Foreign exchange (gain) loss -                                              
 other                                 (20)       (10)       (29)        (6)
----------------------------------------------------------------------------
Total foreign exchange (gain)                                               
 loss                            $      45  $      26  $      73  $      10 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
10) Net Finance Expense 


 
                                  Three Months Ended     Six Months Ended   
                                       June 30               June 30        
($ millions)                          2013       2012       2013       2012 
----------------------------------------------------------------------------
                                                                            
Interest costs on long-term                                                 
 debt(1)                         $      31  $      30  $      57  $      51 
  Less capitalized interest on                                              
   long-term debt                      (28)       (21)       (51)       (41)
----------------------------------------------------------------------------
Interest expense on long-term                                               
 debt                            $       3  $       9  $       6  $      10 
Interest expense on employee                                                
 future benefits                         4          4          8          8 
Accretion of asset retirement                                               
 obligation                              6          7         12         13 
----------------------------------------------------------------------------
Net finance expense              $      13  $      20  $      26  $      31 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Interest costs on long-term debt are net of interest income of $3        
 million and $8 million for the three and six months ended June 30, 2013    
 and $3 million and $5 million for the three and six months ended June 30,  
 2012, respectively.                                                        

 
11) Tax Expense 


 
                                    Three Months Ended    Six Months Ended  
                                         June 30              June 30       
($ millions)                            2013       2012      2013       2012
----------------------------------------------------------------------------
                                                                            
Current tax expense                $      90  $      20 $     180  $      20
Deferred tax expense (recovery)          (16)        19       (38)       118
----------------------------------------------------------------------------
Total tax expense                  $      74  $      39 $     142  $     138
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
12) Capital Management 
The Corporation's capital consists of cash and cash equivalents, debt
and Shareholders' equity. The balance of each of these items at June
30, 2013 and December 31, 2012 was as follows: 


 
                                                     June 30    December 31 
($ millions, except % amounts)                          2013           2012 
----------------------------------------------------------------------------
Long-term debt (1),(2)                         $       1,897  $       1,794 
Cash and cash equivalents                             (1,416)        (1,553)
----------------------------------------------------------------------------
Net debt(1),(3)                                $         481  $         241 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity                           $       4,573  $       4,515 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total net capitalization(1),(4)                $       5,054  $       4,756 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total capitalization(1),(5)                    $       6,470  $       6,309 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net debt-to-total net capitalization(1),(6)                                 
 (%)                                                      10              5 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt-to-total capitalization(1),(7)                               
 (%)                                                      29             28 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
(1)Additional GAAP financial measure.                                       
(2)Includes current and non-current portions of long-term debt.             
(3)Long-term debt less cash and cash equivalents.                           
(4)Net debt plus Shareholders' equity.                                      
(5)Long-term debt plus Shareholders' equity.                                
(6)Net debt divided by total net capitalization.                            
(7)Long-term debt divided by total capitalization.                          

 
Net debt, comprised of current and non-current portions of long-term
debt less cash and cash equivalents, increased to $481 million at
June 30, 2013 from $241 million at December 31, 2012, as existing
cash balances were used to fund capital expenditures and dividend
payments in excess of cash flow from operations. In addition, a
weakening Canadian dollar from December 31, 2012 to June 30, 2013
increased the Canadian equivalent value of Canadian Oil Sands'
long-term debt, all of which is denominated in U.S. dollars. As a
result, net debt-to-total net capitalization increased to 10 per cent
at June 30, 2013 from five per cent at December 31, 2012. 
Shareholders' equity increased to $4,573 million at June 30, 2013
from $4,515 million at December 31, 2012, as net income exceeded
dividends in the first half of 2013. 
The Corporation's senior notes indentures and credit facility
agreements contain certain covenants which restrict Canadian Oil
Sands' ability to sell all or substantially all of its assets or
change the nature of its business, and limit long-term debt-to-total
capitalization to 55 per cent. Canadian Oil Sands is in compliance
with its debt covenants, and with a long-term debt-to-total
capitalization of 29 per cent at June 30, 2013, a significant
increase in debt or decrease in equity would be required to
negatively impact the Corporation's financial flexibility. 
13) Financial Instruments 
The Corporation's financial instruments include cash and cash
equivalents, accounts receivable, investments held in a reclamation
trust, accounts payable and accrued liabilities, and current and
non-current portions of long-term debt. The nature, the Corporation's
use of, and the risks associated with these instruments are unchanged
from December 31, 2012. 
Offsetting Financial Assets and Financial Liabilities 
The carrying values of accounts receivable and accounts payable and
accrued liabilities have each been reduced by $44 million ($25
million at December 31, 2012) as a result of netting agreements with
counterparties. 
Fair Values 
The fair values of cash and cash equivalents, accounts receivable,
reclamation trust investments and accounts payable and accrued
liabilities approximate their carrying values due to the short-term
nature of those instruments. The fair value of long-term debt, based
on third-party market indications, is as follows: 


 
                                                         June 30 December 31
As at ($ millions)                                          2013        2012
----------------------------------------------------------------------------
                                                                            
8.2% Senior Notes due April 1, 2027 (U.S. $73.95                            
 million)                                            $        98 $       104
7.9% Senior Notes due September 1, 2021 (U.S. $250                          
 million)                                                    325         332
5.8% Senior Notes due August 15, 2013 (U.S. $300                            
 million)                                                    317         309
7.75% Senior Notes due May 15, 2019 (U.S. $500                              
 million)                                                    632         628
4.5% Senior Notes due April 1, 2022 (U.S. $400                              
 million)                                                    427         435
6.0% Senior Notes due April 1, 2042 (U.S. $300                              
 million)                                                    334         350
----------------------------------------------------------------------------
                                                     $     2,133 $     2,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
14) Commitments 
Canadian Oil Sands' commitments are summarized in the 2012 annual
consolidated financial statements and include future cash payments
that the Corporation is required to make under existing contractual
arrangements entered into directly or as a 36.74 per cent owner in
Syncrude. There are no significant new commitments relative to the
2012 annual disclosure. 
15) Contingencies 
Crown royalties include Canadian Oil Sands' share of 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 reference price adjusted to reflect
quality and location differences between Syncrude's bitumen and the
Canadian reference price bitumen. In addition, the agreement provides
that a minimum bitumen value, or "floor price", may be imposed in
circumstances where Canadian heavy oil prices are temporarily
suppressed relative to North American heavy oil prices. 
Canadian Oil Sands' share of the royalties recognized for the period
from January 1, 2009 to June 30, 2013 reflect management's best
estimate of both reasonable quality and transportation deductions and
adjustments to reflect the "floor price." However, the Syncrude
owners and the Alberta government are disputing the basis for the
quality, transportation and "floor price" adjustments. Under
alternate assumptions, Canadian Oil Sands' share of Crown royalties
for this period could be as much as $60 million (on an after-tax
basis) more than the amounts recognized. 
The Syncrude owners and the Alberta government continue to discuss
these matters, but if such discussions do not result in an agreed
upon solution, either party may seek judicial determination of the
matter. The cumulative impact, if any, of such discussions or
judicial determination, as applicable, would be recognized and impact
both net income and cash flow from operations accordingly. 
16) Supplementary Information 
a) Change in Non-Cash Working Capital 


 
                                  Three Months Ended     Six Months Ended   
                                       June 30               June 30        
($ millions)                          2013       2012       2013       2012 
----------------------------------------------------------------------------
                                                                            
Operating activities:                                                       
  Accounts receivable ("AR")     $      31  $     106  $      27  $     157 
  Inventories                           12         14        (11)         7 
  Prepaid expenses                       4          4          7          9 
  Accounts payable and accrued                                              
   liabilities ("AP")                    7         (5)        62         75 
  Current taxes                         78         20        124         20 
  Less: AP and AR changes                                                   
   reclassified to investing and                                            
   other                               (13)       (22)       (37)       (39)
----------------------------------------------------------------------------
Change in operating non-cash                                                
 working capital                 $     119  $     117  $     172  $     229 
----------------------------------------------------------------------------
                                                                            
Investing activities:                                                       
  Accounts payable and accrued                                              
   liabilities                   $      13  $      18  $      36  $      36 
----------------------------------------------------------------------------
Change in investing non-cash                                                
 working capital                 $      13  $      18  $      36  $      36 
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
Change in total non-cash working                                            
 capital                         $     132  $     135  $     208  $     265 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
b) Income Taxes and Interest Paid 


 
                                     Three Months Ended   Six Months Ended  
                                           June 30             June 30      
($ millions)                              2013      2012      2013      2012
----------------------------------------------------------------------------
                                                                            
Income taxes paid                    $      12 $       - $      56 $       -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid                        $      43 $      22 $      63 $      45
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Income taxes paid and the portion of interest costs that is expensed
are included within cash from operating activities on the
Consolidated Statements of Cash Flows. The portion of interest costs
that is capitalized as property, plant and equipment is included
within cash used in investing activities on the Consolidated
Statements of Cash Flows. 
c) Cash Flow From Operations Per Share  


 
                                     Three Months Ended   Six Months Ended  
                                           June 30             June 30      
($ millions)                              2013      2012      2013      2012
----------------------------------------------------------------------------
Cash Flow From Operations Per Share,                                        
 basic and diluted                   $    0.71 $    0.51 $    1.28 $    1.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Cash flow from operations per Share is calculated as cash flow from
operations, which is cash from operating activities before changes in
non-cash working capital, divided by the weighted-average number of
outstanding Shares in the period. 
17) Prior Period Comparative Amounts 
During the fourth quarter of 2012, the Corporation completed a review
of the presentation of crude oil purchase and sale transactions and
it was determined that certain transactions previously reported on a
gross basis (sales are presented gross of crude oil purchases and
transportation expense) are more appropriately reflected on a net
basis (crude oil purchases and transportation expense are netted
against sales). Prior period comparative amounts have been
reclassified to conform to the current period presentation. The
impact is as follows: 


 
                                                Three Months     Six Months 
                                                       Ended          Ended 
($ millions)                                   June 30, 2012  June 30, 2012 
----------------------------------------------------------------------------
                                                                            
Sales                                          $         (57) $        (120)
Crude oil purchases and transportation expense           (57)          (120)
----------------------------------------------------------------------------
Net income                                     $           -  $           - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
Canadian Oil Sands Limited                                            
Marcel Coutu, President & Chief Executive Officer
Contacts:
Canadian Oil Sands Limited
Siren Fisekci
Vice President, Investor & Corporate Relations
(403) 218-6228 
Canadian Oil Sands Limited
Alison Trollope
Manager, Investor Relations
(403) 218-6231 
Canadian Oil Sands Limited
2000 First Canadian Centre
350 - 7 Avenue S.W. Calgary, Alberta T2P 3N9
(403) 218-6200
(403) 218-6201 (FAX)
invest@cdnoilsands.com
www.cdnoilsands.com