Risk Management

Canadian Oil Sands systematically approaches the management of risk through a process designed to identify, categorize and assess principle risks. Syncrude Canada, as operator of the joint venture, identifies and assesses the operational and environmental, health and safety (“EH&S”) risks which may impact their operations. Canadian Oil Sands augments Syncrude’s analysis with further consideration of risks specific to Canadian Oil Sands and by having representation on Syncrude Canada’s EH&S committee, which stewards Syncrude’s operations in that regard. We categorize risks based on their probability of occurrence and their potential impact on free cash flow, corporate reputation and EH&S. Syncrude and Canadian Oil Sands take a number of actions once the risks have been identified and categorized, including avoidance, mitigation, risk transfer and acceptance. The Board of Directors is presented annually with a summary of management’s assessment of the risks and strategies aimed at reasonably managing such risks. The Board reviews such assessment and recommendations regarding management of the risks and provides oversight of this risk management process.

There are a number of risks impacting Canadian Oil Sands that affect free cash flow and therefore the distributions ultimately paid to Unitholders. Free cash flow is highly sensitive to a number of factors affecting cash from operating activities, including: Syncrude production, sales volumes, oil and natural gas prices, price differentials, foreign currency exchange rates, operating, administrative, and financing expenses, non-production costs, Crown royalties, and regulatory and environmental risks. Distributions are further impacted by sustaining and growth capital expenditures and Canadian Oil Sands’ financing requirements thereof.  Sensitivities to the most significant items affecting cash from operating activities are outlined in the sensitivity section of this MD&A.

The following discusses the significant risks that impact Canadian Oil Sands’ production of SSB. Similar risks will apply to Syncrude’s SSP product when it is produced, which is anticipated to commence in the fourth quarter of 2007. More information regarding Canadian Oil Sands’ risks is available in our AIF, which is available at www.sedar.com or on our website at www.cos-trust.com.