Canadian Oil Sands funds its share of Syncrude's operations, in addition to our own administrative costs and acquisitions, through cash generated from the sale of our proportionate share of Syncrude production and, as required and deemed appropriate, debt and equity financing.
Cash from operating activities and the distributions paid to Unitholders are highly dependent on the net selling price received for our SCO, production and sales volumes, operating costs and other expenses, including Crown royalties. The price we receive for our product, net of crude oil purchases and transportation expense, reflects the realized selling price at the Syncrude plant gate for our sales of SCO production. Historically, our realized selling price has correlated closely to the United States ("U.S.") West Texas Intermediate ("WTI") benchmark oil price, and also has been impacted by movements in U.S./Canadian foreign exchange rates. World events and supply and demand fundamentals create volatility in crude oil prices, in addition to impacting the weighted-average price differential of our SCO product relative to Canadian dollar WTI prices (the "price differential"). This price differential can quickly move from a premium to a discount depending on the supply/demand dynamics in the market.
Production volumes reflect the capacity of the Syncrude facility and reliability of its operations. The process of mining, extracting and upgrading bitumen is a highly technical and complex operation requiring regular maintenance of the various operating units, which can affect production volumes, and consequently, revenues and operating costs. An oil sands operation such as Syncrude is essentially a manufacturing business, whereby reliability is a critical success factor as costs are largely fixed. If the facilities can process more barrels for the same costs, per barrel costs are reduced and the economics of the project are enhanced. Production volumes therefore have a significant impact on per barrel operating costs and if the plant is not operating, repair costs typically are also being incurred. One of Syncrude's most significant production costs is natural gas. Operating costs are therefore also sensitive to changes in natural gas prices and natural gas volumes consumed in the production process.
The large scale of the Syncrude facilities requires a workforce of approximately 4,700 people to run the 24-hour, 365-day operations and significantly more during major unit turnarounds. With a relatively small labour force in the Fort McMurray area, Syncrude must remain competitive in its compensation and is subject to increasing market rates for contracted equipment and workers, which translates to upward pressure on operating costs.
The Trust's production volumes differ from its sales volumes due to changes in inventory, which are primarily in-transit pipeline volumes that vary with current production rates. The growth in production from the completion of the Stage 3 facilities late in 2006 also has required Canadian Oil Sands to access more distant markets on additional pipelines, which generally increases pipeline inventory volumes.
The Trust maintains a strong balance sheet and investment grade credit ratings to maintain access to capital markets to finance its business. The Trust also currently intends to pay distributions to our Unitholders with cash generated from the operations that is not required for financing Syncrude's operations or capital investment growth opportunities.
More information regarding Canadian Oil Sands, including our Annual Information Form, is available at www.sedar.com or on our website at www.cos-trust.com.
