TSX Commentary

In connection with the release of its November synthetic oil volumes, RBC CM has trimmed its 2009 production outlook for Canadian Oil Sands Trust, but remain constructive on its 2010 outlook. Syncrude’s vacuum distillation unit experienced unexpected maintenance in November. This problem has since been resolved and production rates are expected to recover in December, but RBC CM now pegs COS’s fourth-quarter production at 117,600 bbl/d, 9% lower than its previous outlook. Reflective of 3% lower production levels of 102,700 bbl/d and modestly higher expected operating costs of $36/bbl, the CPFU outlook for COS is now $1.45 (vs. prior $1.60) in 2009. RBC CM’s revised 2009 production outlook remains within the goal posts of COS’s guidance range of 101,000 – 105,000 bbl/d. RBC CM continues to believe that the sale of ConocoPhillips’ 9% interest in Syncrude is COS’s to lose. RBC CM pegs this transaction at roughly $4.0 billion. As much as bigger is not always better, the transaction could make logical sense on two fronts. First, it would enable COS to buy oil sands assets headed into what is expected to be a continuation of a bull market for crude oil as demand recovers. Second, COS could be picking up additional interest in Syncrude before the operational improvements have fully surfaced.