Acquisition of Canadian Arctic

In the last half of 2006, Canadian Oil Sands acquired Canadian Arctic for approximately $223 million. Canadian Oil Sands acquired 78% of Canadian Arctic in August 2006, and the remaining 22% in October 2006. At December 31, 2006, Canadian Oil Sands had disposed of a significant portion of Canadian Arctic’s conventional oil and natural gas assets for approximately $28 million, with no gain or loss realized on the sales as the carrying values of the properties were equal to the proceeds received. The sale of the remaining properties is in progress. Canadian Oil Sands will continue to hold the natural gas interests in the Arctic Islands (the “Arctic assets”) as a long-term hedge for Canadian Oil Sands’ natural gas requirements at Syncrude, as well as the potential opportunity to participate in the development of another long-life energy resource. The Arctic assets represent mostly carried interests and as such, there is very little requirement for Canadian Oil Sands to fund any field development costs.

As a result of acquiring Canadian Arctic and the related accounting requirements of such a business acquisition, Canadian Oil Sands’ Consolidated Balance Sheet included “Goodwill” and “Assets held for sale” at December 31, 2006. Each of these is explained more fully in the following discussions. Canadian Oil Sands’ interest in Canadian Arctic’s net income and losses since acquisition is reflected in “Loss from discontinued operations” on the Consolidated Statement of Income and Unitholders’ Equity. The Arctic assets are undeveloped and not currently producing; therefore, no net income impact is associated with those properties.

Goodwill

Goodwill on Canadian Oil Sands’ Consolidated Balance Sheet is the excess amount that resulted from the total purchase price of acquiring Canadian Arctic exceeding the accounting fair value of the net identifiable assets and liabilities of that company. At December 31, 2006, the $52 million of goodwill reflects the future income tax liability on the Arctic assets. The goodwill balance will be subject to impairment assessments at least annually, or more frequently if events or changes in circumstances occur that would reasonably be expected to reduce the fair value below the carrying value. At December 31, 2006, there was no impairment of the Trust’s goodwill.

Assets Held for Sale

Since the Trust’s intention was to sell the conventional assets of Canadian Arctic, the fair values of the assets and related liabilities less the estimated costs to sell the assets were classified as “Assets held for sale” on the Trust’s Consolidated Balance Sheet. The assets held for sale have been reduced by $28 million of proceeds received for properties sold in 2006.