Canadian Oil Sands Announces First Quarter Results and a Reduction in Major Project Costs

Canadian Oil Sands Announces First Quarter Results and a Reduction in Major 
Project Costs 
CALGARY, ALBERTA -- (Marketwired) -- 04/30/14 --   Canadian Oil Sands
Limited (TSX: COS)(OTCQX: COSWF) -  
All financial figures are unaudited and in Canadian dollars unless
otherwise noted. 
"Higher production and crude oil prices contributed to a 30 per cent
increase in cash flow from operations in the first quarter of 2014
compared with last year's first quarter," said Ryan Kubik, President
and Chief Executive Officer. "Syncrude has also made significant
progress on our major projects. Our Mildred Lake Mine Train
Replacement project reached 85 per cent completion and our estimated
cost has come down by $300 million gross to Syncrude. The project is
well on track to be in service by the end of the year." 
Highlights for the three months ended March 31, 2014: 


 
 
--  Cash flow from operations was $357 million ($0.74 per Share) in the
    first quarter of 2014 compared with cash flow from operations of $275
    million ($0.57 per Share) in the same quarter of 2013. Higher sales
    volumes, a higher realized selling price and lower current taxes more
    than offset higher operating expenses and Crown royalties. 
--  Net income for the first quarter of 2014 was $172 million ($0.35 per
    Share) compared with $177 million ($0.37 per Share) in the 2013 first
    quarter. The factors that contributed to the increase in cash flow from
    operations similarly impacted net income, but were offset by an increase
    in deferred tax expense and a larger unrealized foreign exchange loss on
    long-term debt in 2014. 
--  Sales volumes in the first quarter of 2014 averaged 105,300 barrels per
    day, up from 95,700 barrels per day in the comparative 2013 quarter when
    volumes were impacted by unplanned outages in extraction and secondary
    upgrading units.  
--  Operating expenses were $445 million, or $46.91 per barrel, in the first
    quarter of 2014 compared with $355 million, or $41.20 per barrel, in the
    same quarter of 2013. The increase reflects higher natural gas prices,
    the timing of planned maintenance and tailings management activities,
    and increased drilling relative to the comparative 2013 quarter. With
    the exception of natural gas prices, the increased operating expenses
    were anticipated and in line with budget expectations. 
--  The cost estimate for the Mildred Lake Mine Train Replacement project
    has been reduced to $3.9 billion from $4.2 billion (gross to Syncrude)
    and the project remains on schedule for completion in the fourth quarter
    of this year.  
--  Net debt (long-term debt less cash and cash equivalents) rose to $1.4
    billion at March 31, 2014. Based on the assumptions provided today in
    our 2014 Outlook, we expect to end the year within our targeted net debt
    range of $1 billion to $2 billion. 
--  COS declared a quarterly dividend of $0.35 per Share, payable on May 30,
    2014 to shareholders of record on May 23, 2014.  
 
Highlights                                                                  
 
                                               Three Months Ended March 31  
                                                       2014             2013
----------------------------------------------------------------------------
 
Cash flow from operations(1) ($ millions)    $          357  $           275
 Per Share(1) ($/Share)                      $         0.74  $          0.57
 
Net income ($ millions)                      $          172  $           177
 Per Share, Basic and Diluted ($/Share)      $         0.35  $          0.37
 
Sales volumes(2)                                                            
 Total (mmbbls)                                         9.5              8.6
 Daily average (bbls)                               105,283           95,683
 
Realized SCO selling price ($/bbl)           $       105.73  $         96.11
 
West Texas Intermediate ("WTI") (average                                    
 $US/bbl)                                    $        98.61  $         94.36
 
SCO premium (discount) to WTI (weighted                                     
 average $/bbl)                              $        (2.93) $          1.00
 
Average foreign exchange rate ($US/$Cdn)     $         0.91  $          0.99
 
Operating expenses ($ millions)              $          445  $           355
 Per barrel ($/bbl)                          $        46.91  $         41.20
 
Capital expenditures ($ millions)            $          217  $           268
 
Dividends ($ millions)                       $          170  $           170
 Per Share ($/Share)                         $         0.35  $          0.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
(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.                                        

2014 Outlook 
Canadian Oil Sands provides the following key estimates and
assumptions for 2014: 


 
 
--  We have lowered our 2014 Syncrude production estimate to range between
    95 and 105 million barrels, with a single-point estimate of 100 million
    barrels (274,000 barrels per day). Net to Canadian Oil Sands, the
    single-point estimate is equivalent to 36.7 million barrels (100,700
    barrels per day). This change reflects an unplanned Coker 8-1 outage to
    remove coke deposits following a valve leak repair. The revised estimate
    incorporates the additional complexity resulting from the overlap with
    our planned Coker 8-2 turnaround and continues to reflect the successful
    startup of the new Mildred Lake mine trains in the fourth quarter. 
--  Estimated 2014 sales, net of crude oil purchases and transportation
    expense, have risen to $3,528 million, reflecting an increase in the
    forecast realized selling price to $96 per barrel and the revised
    production estimate. 
--  The revised forecast selling price assumes a U.S. $92 per barrel WTI oil
    price, a foreign exchange rate of $0.92 U.S./Cdn and a $4 per barrel SCO
    discount to Canadian dollar WTI. 
--  Our estimate for 2014 operating expenses has increased to $1,693 million
    reflecting a higher natural gas price assumption and actual results
    incurred in the first quarter of the year. Based on our revised single-
    point production estimate, this translates to $46.08 per barrel. 
--  Based on these assumptions, estimated 2014 cash flow from operations has
    risen to $1,194 million, or $2.46 per Share. 
--  Estimated capital expenditures have decreased to $928 million,
    reflecting the reduction in the Mildred Lake Mine Train Replacement
    project cost estimate and adjustments to spending on regular maintenance
    capital projects. 

More information on the outlook is provided in our MD&A and the April
30, 2014 guidance document, which is available on our web site at
www.cdnoilsands.com under "Investor Centre". 
The 2014 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. 
Annual General Meeting 
COS will hold its Annual General Meeting of Shareholders today, April
30, 2014 at 2:30 p.m. (MDT) in the Ballroom of the Metropolitan
Conference Centre, located at 333 Fourth Avenue SW, Calgary, Alberta.
A live audio webcast of the meeting can be accessed on COS' website
at www.cdnoilsands.com. An archived version of the webcast and
presentation material will be available shortly after the meeting
from the website and archived for 90 days.  
Management's Discussion and Analysis 
The following Management's Discussion and Analysis ("MD&A") was
prepared as of April 30, 2014 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 months
ended March 31, 2014 and March 31, 2013, the audited consolidated
financial statements and MD&A of the Corporation for the year ended
December 31, 2013 and the Corporation's Annual Information Form
("AIF") dated February 20, 2014. 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
Generally Accepted Accounting Principles ("GAAP") and are reported in
Canadian dollars, unless otherwise noted. 
Table of Contents 


 
 
1.  Advisories 4-6 
2.  Overview 7-8 
3.  Review of Financial Results 8-13 
4.  Summary of Quarterly Results 14 
5.  Capital Expenditures 15 
6.  Contractual Obligations and Commitments 15 
7.  Dividends 15 
8.  Liquidity and Capital Resources 16 
9.  Shareholders' Capital and Trading Activity 17 
10. 2014 Outlook 17-18 
11. Major Projects 19 

Advisories 
Forward Looking Information 
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 2014 annual Syncrude forecasted production
range of 95 million barrels to 105 million barrels and the
single-point Syncrude production estimate of 100 million barrels
(36.7 million barrels net to the Corporation); the timing and
duration of the Coker 8-1 maintenance; the timing and duration of the
Coker 8-2 turnaround; the intention to fund the Syncrude major
projects primarily with cash flow from operations and existing cash
balances; the establishment of future dividend levels with the intent
of absorbing short-term market volatility over several quarters; the
expected sales, operating expenses, purchased energy costs,
development expenses, Crown royalties, capital expenditures and cash
flow from operations for 2014; the plan to use existing cash balances
to fund capital expenditures and dividends; the anticipated amount of
current taxes in 2014; expectations regarding the Corporation's cash
levels for 2014; the expected price for crude oil and natural gas in
2014; the expected foreign exchange rates in 2014; the expected
realized selling price, which includes the anticipated differential
to West Texas Intermediate ("WTI") to be received in 2014 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 belief
that fluctuations in the Corporation's realized selling prices, U.S.
to Canadian dollar exchange rate fluctuations and planned and
unplanned maintenance activities may impact the Corporation's
financial results in the future; the belief that capital expenditures
and capital deductions for Crown royalties will decline after 2014 in
connection with the substantial completion of the major projects; the
expected amount of total major project costs, anticipated target
in-service dates and estimated completion percentages for the Mildred
Lake mine train replacements and the centrifuge plant at the Mildred
Lake mine; the cost estimates for 2014 and 2015 major project
spending; and the estimate that regular maintenance capital costs for
the next few years should be similar to 2014. 
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 April 30, 2014 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: volatility of crude
oil prices; volatility of the synthetic crude oil ("SCO") to WTI
differential; the impact that pipeline capacity and apportionment and
refinery demand have on prices for SCO; the impacts of regulatory
changes especially those which relate to royalties, taxation,
tailings, water and the environment; the impact of new technologies
on the cost of oil sands mining; the impacts of rising costs
associated with tailings and water management; the inability of
Syncrude to obtain required consents, permits or approvals, including
without limitation, the inability of Syncrude to obtain approval to
release water from its operations; the impact of Syncrude being
unable to meet the conditions of its approval for its tailings
management plan under Directive 074; various events which could
disrupt operations including fires, equipment failures and severe
weather; unsuccessful or untimely implementation of capital or
maintenance projects; the impact of technology on operations and
processes and how new complex technology may not perform as expected;
the obtaining of required owner approvals from the Syncrude owners
for expansions, operational issues and contractual issues; labour
turnover and shortages and the productivity achieved from labour in
the Fort McMurray area; uncertainty of estimates with respect to
reserves and resources; the supply and demand metrics for oil and
natural gas; currency and interest rate fluctuations; volatility of
natural gas prices; the Corporation's ability to either generate
sufficient cash flow from operations to meet its current and future
obligations or obtain external sources of debt and equity capital;
the inability of the Corporation to continue to meet the listing
requirements of the Toronto Stock Exchange; general economic,
business and market conditions and such other risks and uncertainties
described in the Corporation's AIF dated February 20, 2014 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 April 30,
2014, and unless required by law, the Corporation does not undertake
any obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information,
future events or otherwise. The forward-looking statements contained
in this MD&A 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. Because cash flow from operations and cash flow from
operations per Share are not impacted by fluctuations in non-cash
working capital balances, we believe these measures are more
indicative of operational performance than cash from operating
activities. With the exception of current taxes, liabilities for
Crown royalties and the current portion of our asset retirement
obligation, our non-cash working capital is liquid and typically
settles within 30 days. 
Cash flow from operations is reconciled to cash from operating
activities as follows: 


 
 
                                              Three Months Ended March 31 
($ millions)                                           2014           2013
--------------------------------------------------------------------------
 
Cash flow from operations(1)                  $         357  $         275
Change in non-cash working capital(1)                  (479)            54
--------------------------------------------------------------------------
Cash from (used in) operating activities(1)   $        (122) $         329
--------------------------------------------------------------------------
--------------------------------------------------------------------------
 
(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 analyze liquidity and
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 months ended March 31, 2014. 
Overview 
Canadian Oil Sands generated higher-than-forecast cash flow from
operations in the first quarter of 2014 as stable production from the
Syncrude Joint Venture ("Syncrude") and a strong realized selling
price for our Synthetic crude oil ("SCO") more than offset the impact
of high natural gas prices. Syncrude production totalled 26.3 million
barrels, or 292,500 barrels per day, and COS realized a $106 per
barrel average selling price, 20 per cent higher than the $88 per
barrel forecast in our January 2014 Outlook. 
Operating expenses totalled $445 million, or $46.91 per barrel,
reflecting higher-than-forecast natural gas prices as well as planned
maintenance, tailings management and drilling activities. With the
exception of natural gas prices, the increased operating expenses
were anticipated and in line with budget expectations. 
Capital expenditures on the Mildred Lake Mine Train Replacement
project are trending below budget and the project remains on schedule
for completion in the fourth quarter of this year. Accordingly, we
have reduced our total cost estimate from $4.2 billion to $3.9
billion (gross to Syncrude), tightened the range around this
estimate, and reduced total forecast capital expenditures for 2014.
The Centrifuge Tailings Management project continues to track to
budget and remains on schedule for completion in the first half of
2015. 
Net debt rose to $1.4 billion at March 31, 2014, as cash balances
were used to settle approximately $500 million of existing
liabilities for Crown royalties and taxes while a weakening Canadian
dollar increased the carrying value of our long-term debt. Cash flow
from operations of $357 million was almost sufficient to fund first
quarter capital expenditures of $217 million and dividends of $170
million. 
On April 24, Syncrude commenced maintenance work on Coker 8-1
following an interruption in the unit's operation in order to repair
a valve leak. The maintenance work is expected to overlap the Coker
8-2 turnaround scheduled for the second quarter. 
We have revised our 2014 Outlook to reflect lower estimated annual
Syncrude production ranging from 95 to 105 million barrels with a
single-point estimate of 100 million barrels (274,000 barrels per
day). Estimated sales, net of crude oil purchases and transportation
expense, have risen to $3,528 million, reflecting a higher $96 per
barrel annual realized selling price and the revised production
estimate. We are also estimating: increased operating expenses,
reflecting a higher natural gas price assumption and actual results
incurred in the first quarter of the year; and, lower capital
expenditures, reflecting the reduction in the Mildred Lake Mine Train
Replacement cost estimate and adjustments to spending on regular
maintenance capital projects. As a result of these revisions,
estimated 2014 cash flow from operations has increased $36 million to
approximately $1.2 billion and estimated capital expenditures have
fallen to approximately $0.9 billion. Given the assumptions in our
Outlook, we expect net debt levels to be within our targeted range of
$1 billion to $2 billion at year end. 


 
 
Highlights                                                                 
 
                                               Three Months Ended March 31 
                                                        2014           2013
---------------------------------------------------------------------------
 
Cash flow from operations(1) ($ millions)      $         357  $         275
 Per Share(1) ($/Share)                        $        0.74  $        0.57
 
Net income ($ millions)                        $         172  $         177
 Per Share, Basic and Diluted ($/Share)        $        0.35  $        0.37
 
Sales volumes(2)                                                           
 Total (mmbbls)                                          9.5            8.6
 Daily average (bbls)                                105,283         95,683
 
Realized SCO selling price ($/bbl)             $      105.73  $       96.11
 
West Texas Intermediate ("WTI") (average                                   
 $US/bbl)                                      $       98.61  $       94.36
 
SCO premium (discount) to WTI (weighted                                    
 average $/bbl)                                $       (2.93) $        1.00
 
Average foreign exchange rate ($US/$Cdn)       $        0.91  $        0.99
 
Operating expenses ($ millions)                $         445  $         355
 Per barrel ($/bbl)                            $       46.91  $       41.20
 
Capital expenditures ($ millions)              $         217  $         268
 
Dividends ($ millions)                         $         170  $         170
 Per Share ($/Share)                           $        0.35  $        0.35
---------------------------------------------------------------------------
---------------------------------------------------------------------------
 
(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 
Cash Flow from Operations 
Q1 2014 versus Q1 2013 ($ millions)  
To view graph comparison, visit the following link:
http://media3.marketwire.com/docs/COSg.jpg 
Cash flow from operations increased to $357 million, or $0.74 per
Share, in the first quarter of 2014 from $275 million, or $0.57 per
Share, in the first quarter of 2013 as higher sales volumes, a higher
realized selling price and lower current taxes more than offset the
impact of higher operating expenses and Crown royalties. 
Syncrude production in the 2014 first quarter totalled 26.3 million
barrels, or 292,500 barrels per day, a 12 per cent increase over the
23.4 million barrels, or 260,400 barrels per day, produced in the
2013 first quarter when volumes were impacted by unplanned outages in
extraction and secondary upgrading units. Net to the Corporation,
sales volumes increased to 9.5 million barrels, or 105,300 barrels
per day, in the first quarter of 2014 from 8.6 million barrels, or
95,700 barrels per day, in the comparative 2013 quarter. 
The average realized selling price increased to $105.73 per barrel in
the first quarter of 2014 from $96.11 per barrel in the same quarter
of 2013, primarily due to a weaker Canadian dollar as higher WTI oil
prices offset a deterioration in the SCO differential to WTI. 
Operating expenses in the 2014 quarter increased $90 million to
$46.91 per barrel, reflecting higher natural gas prices, the timing
of planned maintenance and tailings management activities, and
increased drilling relative to the comparative 2013 quarter. 
The changes in the components of cash flow from operations are
discussed in greater detail later in this MD&A. 
Net Income 
Canadian Oil Sands reported net income of $172 million, or $0.35 per
Share, in the first quarter of 2014 compared with $177 million, or
$0.37 per Share, in the first quarter of 2013. The factors which
produced an $82 million increase in cash flow from operations also
impacted net income; however, these were offset by a $37 million
increase in deferred tax expense and a $26 million larger unrealized
foreign exchange loss on long-term debt in 2014. The changes in the
components of net income are discussed in greater detail later in
this MD&A. 
The following table shows the net income components per barrel of
SCO: 


 
 
                                        Three Months Ended March 31         
($ per barrel)(1)                        2014           2013         Change 
--------------------------------------------------------------------------- 
 
Sales net of crude oil                                                      
 purchases and transportation                                               
 expense                        $      105.06  $       96.16  $        8.90 
Operating expense                      (46.91)        (41.20)         (5.71)
Crown royalties                         (6.13)         (2.69)         (3.44)
--------------------------------------------------------------------------- 
                                $       52.02  $       52.27  $       (0.25)
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Development expense             $       (3.42) $       (2.97) $       (0.45)
Administration and insurance                                                
 expenses                               (1.74)         (1.78)          0.04 
Depreciation and depletion                                                  
 expense                               (13.58)        (14.19)          0.61 
Net finance expense                     (1.44)         (1.58)          0.14 
Foreign exchange loss                   (5.77)         (3.21)         (2.56)
Tax expense                             (7.94)         (7.95)          0.01 
--------------------------------------------------------------------------- 
                                       (33.89)        (31.68)         (2.21)
--------------------------------------------------------------------------- 
Net income per barrel           $       18.13  $       20.59  $       (2.46)
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
Sales volumes (mmbbls)(2)                 9.5            8.6            0.9 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(1) Per barrel measures derived by dividing the relevant item by sales      
 volumes in the period.                                                     
(2) Sales volumes, net of purchased crude oil volumes.                      
 
Sales Net of Crude Oil Purchases and Transportation Expense             
 
                                       Three Months Ended March 31      
($ millions, except where                                               
 otherwise noted)                        2014         2013       Change 
----------------------------------------------------------------------- 
 
Sales(1)                          $     1,114  $       961  $       153 
Crude oil purchases                      (105)        (124)          19 
Transportation expense                    (14)          (9)          (5)
----------------------------------------------------------------------- 
                                  $       995  $       828  $       167 
----------------------------------------------------------------------- 
----------------------------------------------------------------------- 
Sales volumes(2)                                                        
 Total (mmbbls)                           9.5          8.6          0.9 
 Daily average (bbls)                 105,283       95,683        9,600 
----------------------------------------------------------------------- 
----------------------------------------------------------------------- 
 
Realized SCO selling price                                              
 (average $Cdn/bbl)(3)            $    105.73  $     96.11  $      9.62 
 
West Texas Intermediate ("WTI")                                         
 (average $US/bbl)                $     98.61  $     94.36  $      4.25 
 
SCO premium (discount) to WTI                                           
 (weighted-average $Cdn/bbl)      $     (2.93) $      1.00  $     (3.93)
 
Average foreign exchange rate                                           
 ($US/$Cdn)                       $      0.91  $      0.99  $     (0.08)
----------------------------------------------------------------------- 
----------------------------------------------------------------------- 
 
(1) Sales include sales of purchased crude oil and sulphur.             
(2) Sales volumes, net of purchased crude oil volumes.                  
(3) Sales net of crude oil purchases and transportation expense divided 
 by sales volumes.                                                      

The $167 million, or 20 per cent, increase in first quarter 2014 sales,
net of crude oil purchases and transportation expense, reflects
increased sales volumes and a higher realized selling price relative
to the 2013 first quarter. 


 
 
--  Sales volumes in the first quarter of 2014 averaged 105,300 barrels per
    day, up from 95,700 barrels per day in the comparative 2013 quarter when
    volumes were impacted by unplanned outages in extraction and secondary
    upgrading units. 
--  The first quarter 2014 realized selling price increased by $9.62 per
    barrel, reflecting a U.S. $4.25 per barrel increase in WTI oil prices
    and a weaker Canadian dollar, partially offset by a $3.93 per barrel
    deterioration in the SCO differential to WTI. 

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. Lower crude oil purchases in the first
quarter 2014 reflect more stable production than 2013.  
Operating Expenses 
The following table shows the major components of operating expenses
in total dollars and per barrel of SCO: 


 
 
                                       Three Months Ended March 31          
                                      2014                    2013          
                              $ millions   $ per bbl  $ millions   $ per bbl
----------------------------------------------------------------------------
 
Production and                                                              
 maintenance(1)              $       332 $     35.04 $       282 $     32.70
Natural gas and diesel                                                      
 purchases(2)                         71        7.52          44        5.12
Syncrude pension and                                                        
 incentive compensation               30        3.12          21        2.50
Other(3)                              12        1.23           8        0.88
----------------------------------------------------------------------------
Total operating expenses     $       445 $     46.91 $       355 $     41.20
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
(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 increase in operating expenses in the first quarter of 2014
reflects the timing of planned maintenance and tailings management
activities as well as increased drilling activity. In addition, a
$2.48 per GJ increase in natural gas prices to $5.43 per GJ raised
natural gas purchases. 
Variances in per-barrel operating expenses also reflect changes in
sales volumes, which were higher in the first quarter of 2014. 
The following table shows operating expenses per barrel of bitumen
and SCO. Costs are allocated to bitumen production and upgrading on
the basis used to determine Crown royalties. 


 
 
                                       Three Months Ended March 31          
                                                2014                2013(3) 
--------------------------------------------------------------------------- 
($ per barrel)                    Bitumen        SCO     Bitumen        SCO 
--------------------------------------------------------------------------- 
Bitumen production             $    29.79 $    35.41  $    26.43 $    32.36 
Internal fuel allocation(1)          3.10       3.69        2.65       3.25 
--------------------------------------------------------------------------- 
Total bitumen production                                                    
 expenses                      $    32.89 $    39.10  $    29.08 $    35.61 
--------------------------------------------------------------------------- 
 
Upgrading(2)                              $    11.50             $     8.84 
Less: internal fuel                                                         
 allocation(1)                                 (3.69)                 (3.25)
--------------------------------------------------------------------------- 
Total upgrading expenses                  $     7.81             $     5.59 
--------------------------------------------------------------------------- 
 
Total operating expenses                  $    46.91             $    41.20 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(thousands of barrels per day)                                              
--------------------------------------------------------------------------- 
Syncrude production volumes           348        293         319        260 
Canadian Oil Sands sales                                                    
 volumes                                         105                     96 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(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 $5.43 per GJ and $2.95 per GJ in the   
 three months ended March 31, 2014 and March 31, 2013, respectively. Diesel 
 prices averaged $1.08 per litre and $0.90 per litre in the three months    
 ended March 31, 2014 and March 31, 2013, respectively.                     
(2) Upgrading expenses include the production and maintenance expenses      
 associated with processing and upgrading bitumen to SCO.                   
(3) Certain 2013 comparative amounts have been restated to conform to the   
 current year presentation.                                                 

Crown Royalties 
Crown royalties increased to $58 million in the first quarter of 2014
from $23 million in the first quarter of 2013, reflecting an increase
in the deemed bitumen price used to calculate Crown royalties and
higher bitumen production volumes in 2014. 


 
 
Net Finance Expense                                                         
 
                                              Three Months Ended March 31   
($ millions)                                           2014            2013 
--------------------------------------------------------------------------- 
 
Interest costs on long-term debt             $           30  $           31 
Less capitalized interest on long-term debt             (24)            (23)
--------------------------------------------------------------------------- 
Interest expense on long-term debt           $            6  $            8 
Interest expense on employee future benefits              3               4 
Accretion of asset retirement obligation                  7               6 
Interest income                                          (2)             (5)
--------------------------------------------------------------------------- 
Net finance expense                          $           14  $           13 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 

Interest costs on the Corporation's U.S. dollar-denominated long-term
debt reflect lower average outstanding debt levels in the first
quarter of 2014 due to a U.S. $300 million debt repayment in August,
2013, offset by a weaker Canadian dollar relative to the first
quarter of 2013. 


 
 
Foreign Exchange (Gain) Loss                                          
 
                                        Three Months Ended March 31   
($ millions)                                     2014            2013 
--------------------------------------------------------------------- 
 
Foreign exchange loss - long-term debt $           63  $           37 
Foreign exchange gain - other                      (9)             (9)
--------------------------------------------------------------------- 
Total foreign exchange loss            $           54  $           28 
--------------------------------------------------------------------- 
--------------------------------------------------------------------- 

Foreign exchange gains and losses are the result of revaluations of the
Corporation's U.S. dollar-denominated long-term debt, accounts
receivable and cash into Canadian dollars. 
The foreign exchange losses reflect a weakening Canadian dollar in
the first quarter of 2014 (from U.S. $0.94 at December 31, 2013 to
U.S. $0.90 at March 31, 2014) and 2013 (from U.S. $1.01 at December
31, 2012 to U.S. $0.98 at March 31, 2013).  


 
 
Tax Expense                                                     
 
                                  Three Months Ended March 31   
($ millions)                                2014           2013 
--------------------------------------------------------------- 
 
Current tax expense              $            60 $           90 
Deferred tax expense (recovery)               15            (22)
--------------------------------------------------------------- 
Total tax expense                $            75 $           68 
--------------------------------------------------------------- 
--------------------------------------------------------------- 

Taxes on a portion of the income generated in the Corporation's
partnership in 2012 were deferred to 2013 and, to a lesser extent, to
2014. As a result, current taxes decreased $30 million in 2014 and
deferred taxes increased $37 million. 


 
 
Asset Retirement Obligation                                                 
                                             Three Months              Year 
                                                    Ended             Ended 
                                                 March 31       December 31 
($ millions)                                         2014              2013 
--------------------------------------------------------------------------- 
 
Asset retirement obligation, beginning                                      
 of period                               $            896  $          1,102 
(Increase) decrease in risk-free                                            
 interest rate                                         50              (217)
Reclamation expenditures                              (17)              (42)
Increase (decrease) in estimated                                            
 reclamation and closure expenditures                 (14)               27 
Accretion expense                                       7                26 
--------------------------------------------------------------------------- 
Asset retirement obligation, end of                                         
 period                                  $            922  $            896 
Less current portion                                  (28)              (28)
--------------------------------------------------------------------------- 
Non-current portion                      $            894  $            868 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 

Canadian Oil Sands' asset retirement obligation increased from $896
million at December 31, 2013 to $922 million at March 31, 2014
primarily due to a decrease in the interest rate used to discount
future reclamation and closure expenditures from 3.25 per cent at
December 31, 2013 to 3.0 per cent at March 31, 2014. 


 
 
Pension and Other Post-Employment Benefit Plans                             
 
                                             Three Months              Year 
                                                    Ended             Ended 
                                                 March 31       December 31 
($ millions)                                         2014              2013 
--------------------------------------------------------------------------- 
 
Accrued benefit liability, beginning of                                     
 period                                  $            308  $            438 
Current service cost                                   11                45 
Interest expense                                        3                16 
Contributions                                         (28)             (109)
Re-measurement (gains) losses:                                              
 Actual return on plan assets in excess                                     
  of estimated return(1)                              (33)              (46)
 Increase in discount rate                              -               (91)
 Other(2)                                               -                55 
--------------------------------------------------------------------------- 
Accrued benefit liability, end of period $            261  $            308 
Less current portion                                  (42)              (82)
--------------------------------------------------------------------------- 
Non-current portion                      $            219  $            226 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(1) Estimated return is based on prescribed 4.5 per cent annualized rate.   
(2) The other re-measurement loss in 2013 reflects an increase in the       
 estimated average lifespan of the plans' beneficiaries as a result of new  
 actuarial standards.                                                       

The Corporation's obligation for Syncrude Canada Ltd.'s ("Syncrude
Canada") pension and other post-employment benefits in excess of the
fair value of the assets held in the benefit plans (the "accrued
benefit liability") decreased to $261 million at March 31, 2014 from
$308 million at December 31, 2013 as actual returns on plan assets
were higher than expected and contributions to the plans exceeded
current period expenses. 


 
 
Summary of Quarterly Results                                                
 
                              2014                    2013                  
                                Q1         Q4         Q3        Q2        Q1
----------------------------------------------------------------------------
 
Sales(1) ($ millions)    $     995  $     945  $     871 $     921 $     828
 
Net income ($ millions)  $     172  $     192  $     246 $     219 $     177
 Per Share, Basic &                                                         
  Diluted                $    0.35  $    0.40  $    0.51 $    0.45 $    0.37
 
Cash flow from                                                              
 operations(2) ($                                                           
 millions)               $     357  $     392  $     339 $     343 $     275
 Per Share(2)            $    0.74  $    0.81  $    0.70 $    0.71 $    0.57
 
Dividends ($ millions)   $     170  $     169  $     170 $     169 $     170
 Per Share               $    0.35  $    0.35  $    0.35 $    0.35 $    0.35
 
Daily average sales                                                         
 volumes(3) (bbls)         105,283    112,092     84,250   100,094    95,683
 
Realized SCO selling                                                        
 price ($/bbl)           $  105.73  $   91.47  $  112.55 $  100.90 $   96.11
 
WTI(4) (average $US/bbl) $   98.61  $   97.61  $  105.81 $   94.17 $   94.36
 
SCO premium (discount)                                                      
 to WTI                  $   (2.93) $  (10.84) $    2.63 $    4.79 $    1.00
(weighted-average $/bbl)                                                    
 
Operating expenses(5)                                                       
 ($/bbl)                 $   46.91  $   37.60  $   46.15 $   43.23 $   41.20
 
Purchased natural gas                                                       
 price ($/GJ)            $    5.43  $    3.28  $    2.59 $    3.41 $    2.95
 
Foreign exchange rates                                                      
 ($US/$Cdn)                                                                 
 Average                 $    0.91  $    0.95  $    0.96 $    0.98 $    0.99
 Quarter-end             $    0.90  $    0.94  $    0.97 $    0.95 $    0.98
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
(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 
 amendments to International Accounting Standard ("IAS") 19, Employee       
 Benefits.                                                                  
 
Summary of Quarterly Results                            
 
                                    2012(6)             
                                Q4        Q3         Q2 
------------------------------------------------------- 
 
Sales(1) ($ millions)    $     929 $     941  $     740 
 
Net income ($ millions)  $     218 $     336  $     101 
 Per Share, Basic &                                     
  Diluted                $    0.45 $    0.69  $    0.21 
 
Cash flow from                                          
 operations(2) ($                                       
 millions)               $     418 $     470  $     245 
 Per Share(2)            $    0.86 $    0.97  $    0.51 
 
Dividends ($ millions)   $     169 $     170  $     170 
 Per Share               $    0.35 $    0.35  $    0.35 
 
Daily average sales                                     
 volumes(3) (bbls)         111,669   113,331     89,460 
 
Realized SCO selling                                    
 price ($/bbl)           $   89.99 $   89.89  $   90.59 
 
WTI(4) (average $US/bbl) $   88.23 $   92.20  $   93.35 
 
SCO premium (discount)                                  
 to WTI                  $    2.52 $   (2.00) $   (5.20)
(weighted-average $/bbl)                                
 
Operating expenses(5)                                   
 ($/bbl)                 $   38.76 $   36.07  $   50.25 
 
Purchased natural gas                                   
 price ($/GJ)            $    3.02 $    2.23  $    1.79 
 
Foreign exchange rates                                  
 ($US/$Cdn)                                             
 Average                 $    1.01 $    1.00  $    0.99 
 Quarter-end             $    1.01 $    1.02  $    0.98 
------------------------------------------------------- 
------------------------------------------------------- 
 
(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 amendments to International        
 Accounting Standard ("IAS") 19, Employee Benefits.     

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


 
 
--  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. $107 per barrel, and the monthly average
    differentials between our realized selling price and Canadian dollar WTI
    prices have ranged from an $10 per barrel premium to 
    a $15 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; 
--  bitumen values used to calculate Crown royalties from 2009 to 2013
    changed as new information became available; 
--  changes in natural gas prices have impacted operating expenses; and 
--  increases in current taxes reduced cash flow from operations. Prior to
    2013, tax pools sheltered the Corporation's income from significant
    current taxes. In addition, current taxes on income generated in the
    Corporation's partnership vary depending on when income is recognized in
    the Corporation's tax returns. 

Increased spending on capital projects to replace or relocate Syncrude
mine trains and to support tailings management plans has increased
capital expenditures and reduced Crown royalties over the past eight
quarters. These projects are expected to be substantially complete by
the end of 2014, reducing capital deductions for Crown royalties as
project risk declines. 


 
 
Capital Expenditures                                                        
 
                                                Three Months Ended March 31 
($ millions)                                             2014           2013
----------------------------------------------------------------------------
 
Major Projects                                                              
 Mildred Lake Mine Train Replacements          $           88 $          113
 Centrifuge Tailings Management                            73             37
 Aurora North Mine Train Relocations                        -             31
 Aurora North Tailings Management                           -             13
----------------------------------------------------------------------------
Capital expenditures on major projects         $          161 $          194
----------------------------------------------------------------------------
 
Regular maintenance                                                         
 Capitalized turnaround costs                               3              2
 Other                                                     29             49
----------------------------------------------------------------------------
Capital expenditures on regular maintenance    $           32 $           51
----------------------------------------------------------------------------
 
Capitalized interest                           $           24 $           23
----------------------------------------------------------------------------
Total capital expenditures                     $          217 $          268
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital expenditures decreased to $217 million in the first quarter of
2014 reflecting lower spending on the major projects with the
completion of the Aurora North Mine Train Relocation and Aurora North
Tailings Management projects in 2013. As well, regular maintenance
capital expenditures, primarily projects to relocate some of
Syncrude's tailings facilities, were lower compared with the first
quarter of 2013. More information on the major projects is provided
in the "Outlook" section of this MD&A. 
Contractual Obligations and Commitments  
Canadian Oil Sands' contractual obligations and commitments are
summarized in the 2013 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. During 2014, Canadian Oil Sands assumed $75 million in new
funding commitments relating to capital projects while the
Corporation's share of payments prescribed by regulations on Syncrude
Canada's registered pension plans decreased by approximately $200
million as a result of an actuarial valuation completed in April,
2014. 
Dividends 
On April 30, 2014, 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 May 30, 2014 to shareholders of record
on May 23, 2014. The Corporation paid dividends to shareholders
totalling $170 million, or $0.35 per Share, in the first quarter of
2014. 
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
amounts are established with the intent of absorbing short-term
market volatility over several quarters and 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,
cost increases or major operational upsets. 


 
 
Liquidity and Capital Resources                                             
 
                                                   March 31     December 31 
As at ($ millions, except % amounts)                   2014            2013 
--------------------------------------------------------------------------- 
 
Long-term debt(1)                            $        1,665  $        1,602 
Cash and cash equivalents(1)                           (292)           (806)
--------------------------------------------------------------------------- 
Net debt(2,3)                                $        1,373  $          796 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Shareholders' equity(1)                      $        4,759  $        4,732 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Total net capitalization(2,4)                $        6,132  $        5,528 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Total capitalization(2,5)                    $        6,424  $        6,334 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Net debt-to-total net capitalization(2,6)                                   
 (%)                                                     22              14 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Long-term debt-to-total capitalization(2,7)                                 
 (%)                                                     26              25 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(1) As reported in the Consolidated Balance Sheets.                         
(2) Additional GAAP financial measure.                                      
(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, which is comprised of long-term debt less cash and cash
equivalents, rose $577 million to $1,373 million at March 31, 2014 as
cash balances were used to settle existing liabilities of
approximately $500 million for Crown royalties and taxes, while a
weakening Canadian dollar increased the carrying value of our
long-term debt by $63 million. Cash flow from operations was almost
sufficient to fund first quarter capital expenditures of $217 million
and dividends of $170 million. As a result, net debt-to-total net
capitalization increased to 22 per cent at March 31, 2014 from 14 per
cent at December 31, 2013. 
We plan to use existing cash to fund capital expenditures and
dividends. Based on the assumptions in our 2014 Outlook, we expect
net debt to be within our targeted range of $1 billion to $2 billion
at year end, coincident with the substantial completion of our major
projects. 
Shareholders' equity increased to $4,759 million at March 31, 2014
from $4,732 million at December 31, 2013, as comprehensive income
exceeded dividends in the first quarter of 2014. 
Canadian Oil Sands has a $1,500 million operating credit facility
which expires June 1, 2017 and a $40 million extendible revolving
term credit facility which expires June 30, 2015. No amounts were
drawn against these facilities at March 31, 2014 or December 31,
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 26 per cent at
March 31, 2014, a significant increase in debt or decrease in equity
would be required to negatively impact the Corporation's financial
flexibility. 
Shareholders' Capital and Trading Activity 
The Corporation's shares trade on the Toronto Stock Exchange under
the symbol COS. On March 31, 2014, the Corporation had a market
capitalization of approximately $11.2 billion with 484.6 million
shares outstanding and a closing price of $23.19 per Share. The
following table summarizes the trading activity for the first quarter
of 2014. 


 
 
Canadian Oil Sands Limited - Trading Activity                               
 
                             First                                          
                           Quarter       January      February         March
                              2014          2014          2014          2014
----------------------------------------------------------------------------
 
Share price                                                                 
 High                $       23.39 $       20.59 $       21.59 $       23.39
 Low                 $       19.64 $       19.64 $       19.78 $       21.02
 Close               $       23.19 $       20.02 $       21.11 $       23.19
 
Volume of Shares                                                            
 traded (millions)            87.7          25.2          32.8          29.7
Weighted average                                                            
 Shares outstanding                                                         
 (millions)                  484.6         484.6         484.6         484.6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
2014 Outlook                                                             
 
(millions of Canadian dollars, except volume                             
 and per barrel amounts)                                                 
                                                     As of         As of 
                                                  April 30    January 30 
                                                      2014          2014 
------------------------------------------------------------------------ 
 
Operating assumptions                                                    
Syncrude production (mmbbls)                           100           105 
Canadian Oil Sands sales (mmbbls)                     36.7          38.6 
Sales, net of crude oil purchases and                                    
 transportation                               $      3,528  $      3,386 
Realized SCO selling price ($/bbl)            $      96.02  $      87.77 
Operating expenses                            $      1,693  $      1,600 
Operating expenses per barrel                 $      46.08  $      41.48 
Development expenses                          $        176  $        181 
Crown royalties                               $        160  $        128 
Current taxes                                 $        200  $        200 
Cash flow from operations(1)                  $      1,194  $      1,158 
------------------------------------------------------------------------ 
------------------------------------------------------------------------ 
 
Capital expenditure assumptions                                          
Major projects                                $        575  $        653 
Regular maintenance                           $        267  $        361 
Capitalized interest                          $         86  $         83 
Total capital expenditures                    $        928  $      1,097 
------------------------------------------------------------------------ 
------------------------------------------------------------------------ 
 
Business environment assumptions                                         
West Texas Intermediate (U.S.$/bbl)           $      92.00  $      90.00 
Discount to average Cdn$ WTI prices                                      
 (Cdn$/bbl)                                   $      (4.00) $      (5.00)
Foreign exchange rate (U.S.$/Cdn$)            $       0.92  $       0.97 
AECO natural gas (Cdn$/GJ)                    $       4.50  $       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 lowered our 2014 Syncrude production estimate to range between
95 and 105 million barrels, with a single-point estimate of 100
million barrels (274,000 barrels per day). Net to Canadian Oil Sands,
the single-point estimate is equivalent to 36.7 million barrels
(100,700 barrels per day). This change reflects an unplanned Coker
8-1 outage to remove coke deposits following a valve leak repair. The
revised estimate incorporates the additional complexity resulting
from the overlap with our planned Coker 8-2 turnaround and continues
to reflect the successful startup of the new Mildred Lake mine trains
in the fourth quarter. 
Estimated 2014 sales, net of crude oil purchases and transportation
expense, have risen to $3,528 million, reflecting an increase in the
forecast realized selling price and the revised production estimate. 
The forecast selling price has increased $8 per barrel to $96 per
barrel and assumes a U.S. $92 per barrel WTI oil price, a $4 per
barrel SCO discount to Canadian dollar WTI and a foreign exchange
rate of $0.92 U.S./Cdn. 
We have increased forecast 2014 operating expenses to $1,693 million
to reflect a higher $4.50 per gigajoule ("GJ") natural gas price
assumption and actual results incurred in the first quarter of the
year. Based on our revised single-point production estimate, this
translates to $46.08 per barrel. 
Estimated Crown royalties have increased to $160 million, reflecting
an increase in deemed bitumen prices and lower capital deductions,
partially offset by lower bitumen production. 
Estimated capital expenditures have decreased to $928 million,
reflecting a reduction in the Mildred Lake Mine Train Replacement
project cost estimate and adjustments to spending on regular
maintenance capital projects.  
Based on these assumptions, estimated 2014 cash flow from operations
has risen to $1,194 million, or $2.46 per Share. 
We plan to use existing cash to help fund capital expenditures and
dividends. Based on the assumptions in our 2014 Outlook, we expect
net debt to be within our targeted range of $1 billion to $2 billion
at year end, coincident with the substantial completion of our major
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 (April 30, 2014)                               
 
                                                         Cash Flow from     
                                                           Operations       
                                                            Increase        
                                                      $ millions   $ / Share
Variable                          Annual Sensitivity       (1,2)       (1,2)
----------------------------------------------------------------------------
 
Syncrude operating expense                                                  
 decrease                               Cdn$1.00/bbl $        22 $      0.05
Syncrude operating expense                                                  
 decrease                             Cdn$50 million $        11 $      0.02
WTI crude oil price increase           U.S.$1.00/bbl $        25 $      0.05
Syncrude production increase          2 million bbls $        44 $      0.09
Canadian dollar weakening             U.S.$0.01/Cdn$ $        25 $      0.05
AECO natural gas price decrease          Cdn$0.50/GJ $        14 $      0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
(1) These sensitivities are after the impact of taxes.                      
(2) These sensitivities assume Canadian Oil Sands pays Crown royalties based
 on 25 per cent of net bitumen revenues in 2014. Lower bitumen revenues or  
 higher deductible bitumen-related costs may result in minimum Crown        
 royalties based on 1 per cent of gross revenues which will change the      
 sensitivities to these variables.                                          

The 2014 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 expenditures
for years after 2014 will be provided on an annual basis when we
disclose the budgets for those years. 


 
 
Major Projects - Total Project Cost and Schedule Estimates(1)               
 
                                          Total Cost Estimated %            
                              Total Cost    Estimate Complete at      Target
                                Estimate    Accuracy   March 31,  In-Service
                            ($ billions)         (%)     2014(2)        Date
----------------------------------------------------------------------------
 
Mildred Lake MineSyncrude   $        3.9  +5% / -10%         85%     Q4 2014
 Train                                                                      
 Replacement                                                                
                 COS share           1.4                                    
 
Centrifuge       Syncrude   $        1.9 +15% / -15%         75%     H1 2015
 Tailings                                                                   
 Management                                                                 
                 COS share           0.7                                    
 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
Major Projects - Annual Spending Profile(1)                              
 
                                   Spent to                              
                               December 31,                              
($ billions)                           2013      2014      2015     Total
-------------------------------------------------------------------------
 
Syncrude                    $           3.6 $     1.8 $     0.4 $     5.8
Canadian Oil Sands share    $           1.3 $     0.7 $     0.1 $     2.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
 
(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.             

Capital expenditures on the Mildred Lake Mine Train Replacement project
are trending below budget and the project remains on schedule for
completion in the fourth quarter of this year. Accordingly, we have
reduced our total cost estimate from $4.2 billion to $3.9 billion
(gross to Syncrude) and tightened the range around this estimate. The
Centrifuge Tailings Management project continues to track to budget
and remains on schedule for completion in the first half of 2015. 
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 20, 2014 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)                                                                 
(millions of Canadian dollars, except per                                   
 Share and Share volume amounts)                                            
                                                Three Months Ended March 31 
                                                        2014           2013 
--------------------------------------------------------------------------- 
 
Sales                                          $       1,114  $         961 
Crown royalties                                          (58)           (23)
--------------------------------------------------------------------------- 
Revenues                                       $       1,056  $         938 
--------------------------------------------------------------------------- 
 
Expenses                                                                    
 Operating                                     $         445  $         355 
 Development                                              32             26 
 Crude oil purchases and transportation                  119            133 
 Administration                                           10             10 
 Insurance                                                 6              6 
 Depreciation and depletion                              129            122 
--------------------------------------------------------------------------- 
                                               $         741  $         652 
--------------------------------------------------------------------------- 
Earnings from operating activities             $         315  $         286 
 Foreign exchange loss (Note 9)                           54             28 
 Net finance expense (Note 10)                            14             13 
--------------------------------------------------------------------------- 
Earnings before taxes                          $         247  $         245 
 Tax expense (Note 11)                                    75             68 
--------------------------------------------------------------------------- 
Net income                                     $         172  $         177 
Other comprehensive income (loss), net of                                   
 taxes                                                                      
 Items not reclassified to net income:                                      
  Re-measurements of employee future benefit                                
   plans (Note 6)                                         24             14 
 Items reclassified to net income:                                          
 Derivative gains                                         (1)            (1)
--------------------------------------------------------------------------- 
Comprehensive income                           $         195  $         190 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Weighted average Shares (millions)                       485            485 
Shares, end of period (millions)                         485            485 
 
Net income per Share                                                        
 Basic and diluted                             $        0.35  $        0.37 
--------------------------------------------------------------------------- 
 
See Notes to Unaudited Consolidated Financial                               
 Statements                                                                 
 
Consolidated Statements of Shareholders' Equity                            
(unaudited)                                                                
 
                                               Three Months Ended March 31 
(millions of Canadian dollars)                          2014          2013 
-------------------------------------------------------------------------- 
 
Retained earnings                                                          
 Balance, beginning of period                   $      2,040  $      1,823 
 Net income                                              172           177 
 Re-measurements of employee future benefit                                
  plans                                                   24            14 
 Dividends                                              (170)         (170)
-------------------------------------------------------------------------- 
 Balance, end of period                         $      2,066  $      1,844 
-------------------------------------------------------------------------- 
Accumulated other comprehensive income                                     
 Balance, beginning of period                   $          6  $          9 
 Reclassification of derivative gains to net                               
  income                                                  (1)           (1)
-------------------------------------------------------------------------- 
 Balance, end of period                         $          5  $          8 
-------------------------------------------------------------------------- 
Shareholders' capital                                                      
 Balance, beginning of period                   $      2,674  $      2,673 
 Issuance of shares                                        1             1 
-------------------------------------------------------------------------- 
 Balance, end of period                         $      2,675  $      2,674 
-------------------------------------------------------------------------- 
Contributed surplus                                                        
 Balance, beginning of period                   $         12  $         10 
 Share-based compensation                                  1             1 
-------------------------------------------------------------------------- 
 Balance, end of period                                   13            11 
-------------------------------------------------------------------------- 
Total Shareholders' equity                      $      4,759  $      4,537 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
See Notes to Unaudited Consolidated Financial                              
 Statements                                                                
 
Consolidated Balance Sheets                                             
(unaudited)                                                             
                                                   March 31  December 31
As at (millions of Canadian dollars)                   2014         2013
------------------------------------------------------------------------
 
Assets                                                                  
Current assets                                                          
 Cash and cash equivalents                     $        292 $        806
 Accounts receivable                                    423          369
 Inventories                                            173          163
 Prepaid expenses                                         5            8
------------------------------------------------------------------------
                                               $        893 $      1,346
Property, plant and equipment, net (Note 4)           8,836        8,712
Exploration and evaluation                               54           54
Reclamation trust                                        81           78
------------------------------------------------------------------------
                                               $      9,864 $     10,190
------------------------------------------------------------------------
------------------------------------------------------------------------
 
Liabilities and Shareholders' Equity                                    
Current liabilities                                                     
 Accounts payable and accrued liabilities                               
  (Note 5)                                     $        644 $        786
 Current portion of employee future benefits                            
  (Note 6)                                               42           82
 Current taxes                                            -          259
------------------------------------------------------------------------
                                               $        686 $      1,127
Long-term debt                                        1,665        1,602
Deferred taxes                                        1,559        1,535
Employee future benefits (Note 6)                       219          226
Asset retirement obligation (Note 7)                    894          868
Other liabilities (Note 8)                               82          100
------------------------------------------------------------------------
                                               $      5,105 $      5,458
Shareholders' equity                                  4,759        4,732
------------------------------------------------------------------------
                                               $      9,864 $     10,190
------------------------------------------------------------------------
------------------------------------------------------------------------
 
Commitments (Note 14)                                                   
 
See Notes to Unaudited Consolidated Financial                           
 Statements                                                             
 
Consolidated Statements of Cash Flows                                       
(unaudited)                                                                 
 
                                                Three Months Ended March 31 
(millions of Canadian dollars)                           2014          2013 
--------------------------------------------------------------------------- 
 
Cash from (used in) operating activities                                    
Net income                                      $         172 $         177 
Adjustments to reconcile net income to cash flow                            
 from operations:                                                           
 Depreciation and depletion                               129           122 
 Accretion of asset retirement obligation (Note                             
  7)                                                        7             6 
 Foreign exchange loss on long-term debt (Note                              
  9)                                                       63            37 
 Deferred taxes (Note 11)                                  15           (22)
 Share-based compensation                                   4             2 
 Reclamation expenditures (Note 7)                        (17)          (33)
 Change in employee future benefits and other             (16)          (14)
--------------------------------------------------------------------------- 
 Cash flow from operations                      $         357 $         275 
Change in non-cash working capital (Note 15)             (479)           54 
--------------------------------------------------------------------------- 
 Cash from (used in) operating activities       $        (122)$         329 
--------------------------------------------------------------------------- 
 
Cash from (used in) financing activities                                    
Issuance of shares                              $           1 $           - 
Dividends                                                (170)         (170)
--------------------------------------------------------------------------- 
 Cash used in financing activities              $        (169)$        (170)
--------------------------------------------------------------------------- 
 
Cash from (used in) investing activities                                    
Capital expenditures (Note 4)                   $        (217)$        (268)
Reclamation trust funding                                  (3)           (2)
Change in non-cash working capital (Note 15)               (3)           23 
--------------------------------------------------------------------------- 
 Cash used in investing activities              $        (223)$        (247)
--------------------------------------------------------------------------- 
 
Foreign exchange gain on cash and cash                                      
equivalents held in foreign currency            $           - $           6 
--------------------------------------------------------------------------- 
 
Decrease in cash and cash equivalents           $        (514)$         (82)
Cash and cash equivalents, beginning of period            806         1,553 
--------------------------------------------------------------------------- 
Cash and cash equivalents, end of period        $         292 $       1,471 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Cash and cash equivalents consist of:                                       
Cash                                            $         170 $         758 
Short-term investments                                    122           713 
--------------------------------------------------------------------------- 
                                                $         292 $       1,471 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
Supplementary Information (Note 15)                                         
 
See Notes to Unaudited Consolidated Financial                               
 Statements                                                                 

Notes to Unaudited Consolidated Financial Statements 
For the Three Months Ended March 31, 2014 
(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") is incorporated under the laws of the Province of
Alberta, Canada. 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
jointly controlled by seven owners and each owner takes its
proportionate share of production in kind, and funds its share of
Syncrude's operating, development and capital costs on a daily basis.
The Corporation also indirectly 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 Part 1 of the
Chartered Professional Accountants of Canada Handbook and in
accordance with International Financial Reporting Standards ("IFRS")
as issued by the International Accounting Standards Board ("IASB")
and effective on April 30, 2014. 
Certain disclosures that are normally required to be included in the
notes to the annual audited consolidated financial statements have
been condensed or omitted as permitted by International Accounting
Standard ("IAS") 34, Interim Financial Reporting. 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, 2013. 
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, 2013 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. 
Impairment 
In January 2013, the IASB issued amendments to IAS 36, Impairment of
Assets, which removed fair value guidance from the standard to ensure
consistency with the enhanced fair value measurement and disclosure
requirements provided under IFRS 13, Fair Value Measurements.
Canadian Oil Sands has applied these amendments effective January 1,
2014 in accordance with the applicable transitional provisions, with
no impact on the financial statements or disclosures. 
Levies  
In May 2013, the IASB issued International Financial Reporting
Interpretations Committee ("IFRIC") Interpretation 21, Levies, which
provides guidance on when to recognize a liability for levies imposed
by governments. Canadian Oil Sands has applied this interpretation
effective January 1, 2014, in accordance with the applicable
transitional provisions, with no impact on the financial statements
or disclosures. 
4) Property, Plant and Equipment, Net  


 
 
                                Three Months Ended March 31, 2014           
 
                      Upgrading              Vehicles                  Asset
                            and     Mining        and             Retirement
($ millions)         Extracting  Equipment  Equipment   Buildings      Costs
----------------------------------------------------------------------------
 
Cost                                                                        
Balance at January                                                          
 1, 2014             $    5,508  $   1,941  $     695  $      345 $      851
Additions                     -          -          9           -          -
Change in asset                                                             
 retirement costs             -          -          -           -         36
Retirements                  (4)       (16)       (23)          -          -
Reclassifications(1)         16          6          -           -          -
----------------------------------------------------------------------------
Balance at March 31,                                                        
 2014                $    5,520  $   1,931  $     681  $      345 $      887
----------------------------------------------------------------------------
 
Accumulated                                                                 
 depreciation                                                               
Balance at January                                                          
 1, 2014             $    1,626  $     601  $     349  $      115 $      223
Depreciation                 49         33         14           2         11
Retirements                  (4)       (16)       (23)          -          -
Reclassifications(1)          -          -          -           -          -
----------------------------------------------------------------------------
Balance at March 31,                                                        
 2014                $    1,671  $     618  $     340  $      117 $      234
----------------------------------------------------------------------------
 
Net book value at                                                           
March 31, 2014       $    3,849  $   1,313  $     341  $      228 $      653
----------------------------------------------------------------------------
----------------------------------------------------------------------------
 
(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.                                
 
                               Three Months Ended March 31, 2014            
 
                            Major                                           
                       Turnaround Construction           Mine               
($ millions)                Costs  in Progress    Development         Total 
--------------------------------------------------------------------------- 
 
Cost                                                                        
Balance at January                                                          
 1, 2014             $        174 $      1,647  $         678 $      11,839 
Additions                       3          205              -           217 
Change in asset                                                             
 retirement costs               -            -              -            36 
Retirements                     -            -              -           (43)
Reclassifications(1)            -          (22)             -             - 
--------------------------------------------------------------------------- 
Balance at March 31,                                                        
 2014                $        177 $      1,830  $         678 $      12,049 
--------------------------------------------------------------------------- 
 
Accumulated                                                                 
 depreciation                                                               
Balance at January                                                          
 1, 2014             $         86 $          -  $         127 $       3,127 
Depreciation                   17            -              3           129 
Retirements                     -            -              -           (43)
Reclassifications(1)            -            -              -             - 
--------------------------------------------------------------------------- 
Balance at March 31,                                                        
 2014                $        103 $          -  $         130 $       3,213 
--------------------------------------------------------------------------- 
 
Net book value at                                                           
March 31, 2014       $         74 $      1,830  $         548 $       8,836 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 
 
(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 months ended March 31, 2014, interest costs of $24
million were capitalized and included in property, plant and
equipment (three months ended March 31, 2013 - $23 million) based on
an interest capitalization rate of 6.6 per cent for the three months
ended March 31, 2014 (6.5 per cent for the three months ended March
31, 2013). 
5) Accounts Payable and Accrued Liabilities 


 
 
                                                   March 31     December 31 
($ millions)                                           2014            2013 
--------------------------------------------------------------------------- 
 
Trade payables                               $          528  $          491 
Crown royalties                                         137             334 
Current portion of asset retirement                                         
 obligation                                              28              28 
Interest payable                                         18              23 
--------------------------------------------------------------------------- 
                                             $          711  $          876 
Less non-current portion of Crown royalties             (67)            (90)
--------------------------------------------------------------------------- 
Accounts payable and accrued liabilities     $          644  $          786 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 

6) Employee Future Benefits 
The Corporation's 36.74 per cent share of Syncrude Canada's
obligation for pension and other post-employment benefits in excess
of the fair value of the assets held in the benefit plans (the
"accrued benefit liability") is as follows: 


 
 
                                               Three Months           Year 
                                                      Ended          Ended 
                                                   March 31    December 31 
($ millions)                                           2014           2013 
-------------------------------------------------------------------------- 
 
Accrued benefit liability, beginning of                                    
 period                                       $         308  $         438 
Current service cost(1)                                  11             45 
Interest expense(2)                                       3             16 
Contributions                                           (28)          (109)
Re-measurement (gains) losses(3):                                          
Actual return on plan assets in excess of                                  
 estimated return(4)                                    (33)           (46)
Increase in discount rate                                 -            (91)
Other(5)                                                  -             55 
-------------------------------------------------------------------------- 
Accrued benefit liability, end of period      $         261  $         308 
Less current portion                                    (42)           (82)
-------------------------------------------------------------------------- 
Non-current portion                           $         219  $         226 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
(1) Current service cost is recognized in net income as operating expense. 
(2) Interest expense is net of estimated return on plan assets and is      
 recognized in net income as net finance expense.                          
(3) Re-measurement (gains) losses are recognized, net of taxes, in other   
 comprehensive income (loss).                                              
(4) Estimated return is based on prescribed 4.5 per cent annualized rate.  
(5) The other re-measurement loss in 2013 reflects an increase in the      
 estimated average lifespan of the plans' beneficiaries as a result of new 
 actuarial standards.                                                      

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 on disturbed mines and
existing facilities will be made progressively over the next 70 years
and has applied a risk-free interest rate of 3.0 per cent at March
31, 2014 (December 31, 2013 - 3.25 per cent) in deriving the asset
retirement obligation.  


 
 
                                                  Three Months         Year 
                                                         Ended        Ended 
                                                      March 31  December 31 
($ millions)                                              2014         2013 
--------------------------------------------------------------------------- 
 
Asset retirement obligation, beginning of period   $       896  $     1,102 
(Increase) decrease in risk-free interest rate              50         (217)
Reclamation expenditures                                   (17)         (42)
Increase (decrease) in estimated reclamation and                            
 closure expenditures                                      (14)          27 
Accretion expense                                            7           26 
--------------------------------------------------------------------------- 
Asset retirement obligation, end of period         $       922  $       896 
Less current portion                                       (28)         (28)
--------------------------------------------------------------------------- 
Non-current portion                                $       894  $       868 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 

8) Other Liabilities 


 
 
                                               March 31  December 31
($ millions)                                       2014         2013
--------------------------------------------------------------------
 
Non-current portion of Crown royalties(1)  $         67 $         90
Other                                                15           10
--------------------------------------------------------------------
Other liabilities                          $         82 $        100
--------------------------------------------------------------------
--------------------------------------------------------------------
 
(1) Transition royalties due under Syncrude's Royalty Amending      
 Agreement.                                                         

9) Foreign Exchange 


 
 
                                           Three Months Ended March 31  
($ millions)                                        2014           2013 
----------------------------------------------------------------------- 
 
Foreign exchange loss - long-term debt     $          63  $          37 
Foreign exchange gain - other                         (9)            (9)
----------------------------------------------------------------------- 
Total foreign exchange loss                $          54  $          28 
----------------------------------------------------------------------- 
----------------------------------------------------------------------- 

10) Net Finance Expense 


 
 
                                             Three Months Ended March 31 
($ millions)                                         2014           2013 
------------------------------------------------------------------------ 
 
Interest costs on long-term debt            $          30  $          31 
 Less capitalized interest on long-term                                  
  debt                                                (24)           (23)
------------------------------------------------------------------------ 
Interest expense on long-term debt          $           6  $           8 
Interest expense on employee future                                      
 benefits                                               3              4 
Accretion of asset retirement obligation                7              6 
Interest income                                        (2)            (5)
------------------------------------------------------------------------ 
Net finance expense                         $          14  $          13 
------------------------------------------------------------------------ 
------------------------------------------------------------------------ 

11) Tax Expense 


 
 
                                           Three Months Ended March 31 
($ millions)                                        2014          2013 
---------------------------------------------------------------------- 
 
Current tax expense                        $          60 $          90 
Deferred tax expense (recovery)                       15           (22)
---------------------------------------------------------------------- 
Total tax expense                          $          75 $          68 
---------------------------------------------------------------------- 
---------------------------------------------------------------------- 

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 March
31, 2014 and December 31, 2013 was as follows: 


 
 
                                                   March 31    December 31 
As at ($ millions, except % amounts)                   2014           2013 
-------------------------------------------------------------------------- 
 
Long-term debt(1)                             $       1,665  $       1,602 
Cash and cash equivalents(1)                           (292)          (806)
-------------------------------------------------------------------------- 
Net debt(2,3)                                 $       1,373  $         796 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
Shareholders' equity(1)                       $       4,759  $       4,732 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
Total net capitalization(2,4)                 $       6,132  $       5,528 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
Total capitalization(2,5)                     $       6,424  $       6,334 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
Net debt-to-total net capitalization(2,6) (%)            22             14 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
Long-term debt-to-total capitalization(2,7)                                
 (%)                                                     26             25 
-------------------------------------------------------------------------- 
-------------------------------------------------------------------------- 
 
(1) As reported in the Consolidated Balance Sheets.                        
(2) Additional GAAP financial measure.                                     
(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, which is comprised of long-term debt less cash and cash
equivalents, rose $577 million to $1,373 million at March 31, 2014 as
cash balances were used to settle existing liabilities of
approximately $500 million for Crown royalties and taxes, while a
weakening Canadian dollar increased the carrying value of our
long-term debt by $63 million. Cash flow from operations was almost
sufficient to fund first quarter capital expenditures of $217 million
and dividends of $170 million. As a result, net debt-to-total net
capitalization increased to 22 per cent at March 31, 2014 from 14 per
cent at December 31, 2013. 
Shareholders' equity increased to $4,759 million at March 31, 2014
from $4,732 million at December 31, 2013, as comprehensive income
exceeded dividends in the first quarter of 2014. 
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 26 per cent at March 31, 2014, 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, 2013. 
Offsetting Financial Assets and Financial Liabilities 
The carrying values of accounts receivable and accounts payable and
accrued liabilities have each been reduced by $74 million ($49
million at December 31, 2013) 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 following fair values of long-term
debt are based on Level 2 inputs to fair value measurement, which
represent indicative bids or spreads for a round lot transaction
within the relevant market: 


 
 
                                                      March 31   December 31
As at ($ millions)                                        2014          2013
----------------------------------------------------------------------------
 
8.2% Senior Notes due April 1, 2027 (U.S. $73.95                            
 million)                                        $         103 $          95
7.9% Senior Notes due September 1, 2021 (U.S.                               
 $250 million)                                             341           321
6.0% Senior Notes due April 1, 2042 (U.S. $300                              
 million)                                                  369           323
4.5% Senior Notes due April 1, 2022 (U.S. $400                              
 million)                                                  455           425
7.75% Senior Notes due May 15, 2019 (U.S. $500                              
 million)                                                  670           636
----------------------------------------------------------------------------
                                                 $       1,938 $       1,800
----------------------------------------------------------------------------
----------------------------------------------------------------------------

14) Commitments 
Canadian Oil Sands' commitments are summarized in the 2013 annual
consolidated financial statements and include future cash payments
under contractual arrangements that it has entered into either
directly or as a 36.74 per cent owner in Syncrude. During 2014,
Canadian Oil Sands assumed $75 million in new funding commitments
relating to capital projects while the Corporation's share of
payments prescribed by regulations on Syncrude Canada's registered
pension plans decreased by approximately $200 million as a result of
an actuarial valuation completed in April, 2014. 
15) Supplementary Information 
a) Change in Non-Cash Working Capital 


 
 
                                               Three Months Ended March 31  
($ millions)                                            2014           2013 
--------------------------------------------------------------------------- 
 
Operating activities:                                                       
 Accounts receivable                           $         (54) $          (4)
 Inventories                                             (10)           (23)
 Prepaid expenses                                          3              3 
 Accounts payable and accrued liabilities                                   
  ("AP")                                                (142)            55 
 Current taxes                                          (259)            46 
 Other                                                   (20)             - 
 AP changes reclassified to investing                                       
  activities                                               3            (23)
--------------------------------------------------------------------------- 
Change in operating non-cash working capital   $        (479) $          54 
--------------------------------------------------------------------------- 
 
Investing activities:                                                       
 Accounts payable and accrued liabilities      $          (3) $          23 
--------------------------------------------------------------------------- 
Change in investing non-cash working capital   $          (3) $          23 
--------------------------------------------------------------------------- 
 
--------------------------------------------------------------------------- 
Change in total non-cash working capital       $        (482) $          77 
--------------------------------------------------------------------------- 
--------------------------------------------------------------------------- 

b) Income Taxes and Interest Paid 


 
 
                          Three Months Ended March 31
($ millions)                       2014          2013
-----------------------------------------------------
 
Income taxes paid         $         338 $          44
-----------------------------------------------------
-----------------------------------------------------
 
Interest paid             $          35 $          20
-----------------------------------------------------
-----------------------------------------------------

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 March 31
($ millions)                                              2014          2013
----------------------------------------------------------------------------
 
Cash Flow From Operations Per Share, basic and                              
 diluted                                         $        0.74 $        0.57
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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. 
Canadian Oil Sands Limited 
Ryan Kubik, President & Chief Executive Officer 
Shares Listed - Symbol: COS Toronto Stock Exchange 
Contacts:
Canadian Oil Sands Limited
Siren Fisekci
Vice President, Investor & Corporation Relations
(403) 218-6228 
Canadian Oil Sands Limited
Scott Arnold
Director, Sustainability & External Relations
(403) 218-6206 
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
 
 
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