Review of Consolidated Results

Canadian Oil Sands reported net income in 2006 similar to 2005, but higher cash from operating activities. Net income was $834 million, or $1.79 per Unit, in 2006 compared to $831 million, or $1.81 per Unit in the prior year. Cash from operating activities rose to $1.1 billion, or $2.45 per Unit, from $0.9 billion, or $2.07 per Unit, in 2005. The improved cash from operating activities reflects larger sales volumes in 2006, supported by a slightly higher average sales price for our SSB product. Higher revenues in 2006 were partially offset by increases in operating costs, Crown royalties, DD&A and future income tax expense compared to 2005, as well as lower foreign exchange gains than 2005, as shown in the table below. Cash from operating activities was impacted by the same factors, excluding DD&A, unrealized foreign exchange gains, and future income taxes as they are non-cash items.

Net income before unrealized foreign exchange gains and future income tax expense, which management believes is a better measure of operational performance than net income, was $851 million, or $1.83 per Unit in 2006, an improvement of $55 million, or $0.10 per Unit compared to the prior year. The following table reconciles this measure to net income.

The net income before unrealized foreign exchange and future income taxes reflected in the previous table is a measurement that is not defined by GAAP. The Trust also reports funds from operations, free cash flow, and Unitholder distributions on both a total and per Unit basis, as well as cash from operating activities per Unit, which are all measures that do not have any standardized meaning under Canadian GAAP. Funds from operations are calculated on the Trust’s consolidated statement of cash flows as cash from operating activities before changes in operating non-cash working capital. Free cash flow is now calculated as cash from operating activities less capital expenditures and reclamation trust contributions in the period. The net income before foreign exchange and future income taxes in the previous table and the Trust’s funds from operations and free cash flow may not be directly comparable to similar measures presented by other companies or trusts.