Canadian Oil Sands Cuts Dividend

Canadian Oil Sands Limited ("COS") (COS.TO) generated cash flow from operations of $1,106 million ($2.28 per Share) in 2014 and $207 million ($0.43 per Share) during the fourth quarter of the year. Cash flow from operations in the fourth quarter was down about 47 per cent compared with the same period of 2013, largely reflecting lower crude oil prices and higher operating expenses. The decline in crude oil prices has continued into 2015 with West Texas Intermediate ("WTI") benchmark prices to date averaging US$47 per barrel. While the decline in oil prices has been significant, a weaker Canadian dollar has offset some of the impact.

In response to the price environment, Syncrude is undertaking a comprehensive review of costs. An effort was already underway at Syncrude to reduce the cost structure, but this work has intensified to identify near-term opportunities. The initial efforts have identified potential cost reductions in 2015, net to COS, of $260 million to $400 million, or about 10 to 15 per cent, in operating, development and capital costs relative to the budget COS released on December 3, 2014. COS has revised its Outlook for 2015 to incorporate $294, net to COS, of these potential cost reductions. COS does not anticipate these reductions to have an impact on production or reliability initiatives underway at Syncrude, and we are maintaining our production range of 35 million to 40 million barrels net to COS for 2015.

COS is reducing its quarterly dividend to $0.05 per Share for the first quarter of 2015. COS had previously indicated its intention to reduce the quarterly dividend, based on the 2015 Budget assumptions released on December 3, 2014, to $0.20 per Share; however, crude oil prices have declined materially from the Budget assumptions, requiring a further reduction in the dividend to better align with the current price environment and as a prudent step to preserve balance sheet strength in the short and medium term.[...]

The estimate for operating expenses has been reduced to $1,521 million, or about $40 per barrel, based on a production estimate of 103 million barrels at Syncrude and a natural gas price assumption of $3 per gigajoule, as well as the other assumptions outlined in our guidance. The decrease is comprised of $166 million in cost reductions and $45 million due to the lower natural gas price assumption.