Risk Management

Interest Rate Risk

Canadian Oil Sands’ net income and cash from operating activities are impacted by interest rate changes based on the amount of floating rate debt outstanding. At December 31, 2006, we had $195 million of floating rate debt with maturities of less than one year, comprised of $20 million of floating rate and $175 million of fixed rate medium term notes outstanding. The fixed rate notes were swapped into floating rate debt in January 2004. In 2006 and 2005, any gains or losses related to the swaps were recognized in the period the swaps were settled, as they were considered hedges for accounting purposes. As discussed earlier in this MD&A, the Trust will no longer be applying hedge accounting, effective January 1, 2007. The January 2007 maturing debt instruments were refinanced with the Trust’s credit facilities that bear interest at a floating rate based on bankers’ acceptances plus a credit spread.  Canadian Oil Sands is also exposed to interest rate risk in May 2007 when its US$70 million Senior Notes are refinanced with floating rate credit facilities or fixed market rates at the time of refinancing such debt.