Risk Management

2007 Outlook

In 2007, we are anticipating Syncrude production to range between 105 to 120 million barrels, or 39 to 44 million barrels net to the Trust based on its 36.74% working interest with a single point estimate of 110 million barrels, or 40.4 million barrels net to the Trust. The single point estimate includes a full coker turnaround currently scheduled for the third quarter of 2007. The low end of the range reflects the possibility of an additional unscheduled coker turnaround, while the upper end reflects higher than budgeted operational reliability and stability. 

During the first quarter of 2007, it is likely that Syncrude will need to resolve some operational issues on Coker 8-3, which has not been producing at full capacity since November 2006. We had anticipated a period of lining-out and optimizing the different units related to the new Stage 3 facilities before ramp up to full capacity could be reached. We are maintaining our annual production forecast despite Coker 8-3’s constrained production rates as we had anticipated the coker might not operate at full capacity during the lining-out period.

Syncrude’s current focus is on getting the operation up to full annual capacity of 128 million barrels, or 47 million barrels net to the Trust, on a sustained and reliable basis. An additional area of focus will be to improve the product quality from SSB to SSP, which is to be accomplished by addressing the hydrogen limitation issues identified in 2006. In order to do so, modifications to the steam generation unit of the new hydrogen plant are required, which Syncrude intends to make during the planned third quarter coker turnaround. Accordingly, the transition to the higher quality SSP product is expected to occur in the fourth quarter of 2007. We anticipate that SSP’s higher quality should enable some of our existing customers to increase the amount of Syncrude production they process and potentially attract new customers. In addition, we expect the higher quality SSP product to provide a higher market price relative to SSB.

Revenues in 2007 are expected to total $2.4 billion, based on an average WTI price of US$55 per barrel, an average foreign exchange rate of $0.88 US/Cdn, and an average discount to Canadian dollar WTI of $4.00 per barrel, which reflects increased supply of light synthetic crude oil in the market. Operating costs are budgeted to be $25.83 per barrel, which includes $7.08 per barrel for purchased energy based on an average AECO natural gas price of $7.50 per GJ for 2007. We anticipate Crown royalties expense to total $248 million, or $6.14 per barrel, in 2007.

Cash from operating activities is anticipated to total $857 million, or $1.79 per Unit, and includes an anticipated increase in operating working capital requirements of $25 million, reflecting higher 2007 sales levels. Capital expenditures are estimated at $255 million with approximately 57% directed to maintenance of operations, 33% directed to the SER project and 10% to Stage 3 completion and modification costs. Resulting free cash flow, defined as cash from operating activities less capital expenditures and reclamation trust contributions, is estimated to be $1.25 per Unit.