NET DEBT AT DECEMBER 31

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NET DEBT TO TOTAL CAPITALIZATION AT DECEMBER 31

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In January 2007 Canadian Oil Sands paid $238 million in cash and issued 8.2 million Units valued at $237 million to Talisman as consideration for the purchase of Talisman's 1.25 percent indirect Syncrude working interest. The acquisition was followed by the maturity of $195 million of medium term notes on January 15, 2007 and US$70 million of Senior Notes on May 15, 2007, resulting in debt repayments of $272 million in the first half of 2007. The debt repayments were financed by drawings on the Trust's $800 million operating credit facility, which were subsequently repaid by December 31, 2007. As discussed in Note 3(a) to the audited Consolidated Financial Statements, the Trust recorded a $16 million reduction to its long-term debt as a result of adopting the new financial instruments accounting standards. The reduction reflected the reclassification of deferred financing charges against long-term debt, which were previously recorded in other assets on the Trust's Consolidated Balance Sheet. Including an unrealized foreign exchange gain of $153 million, the Trust's long-term debt decreased by $426 million to $1.2 billion at December 31, 2007 and net debt dropped to $950 million, which accounted for most of the year-over-year decrease in the Trust's net debt to total capitalization.

As at December 31, 2007, the Trust's unutilized credit facilities amounted to $808 million, net of letters of credit issued against its $40 million revolving term facility and an additional $45 million line of credit. A $150 million medium term note matures on April 9, 2008. The Trust currently anticipates refinancing this note on maturity using its available credit facilities.

Canadian Oil Sands has set a long-term net debt target of $1.6 billion by 2010, which reduces our cost of capital and conserves our tax pools during the trust taxation transition period. The Trust believes this net debt target will maintain its strong balance sheet, allow it to remain unhedged on its crude oil price exposure, provide the capacity to fund growth opportunities, and maintain an investment grade credit rating. The Trust's actual net debt will fluctuate around this level as factors such as crude oil prices, FX rates, Syncrude's operational performance and the timing of distribution changes vary from our assumptions.

The Units issued from treasury in January 2007 to partially fund the additional Syncrude working interest acquisition increased Unitholders' equity. However, as the Units were issued directly to Talisman, there was no cash impact. The investing section of the Trust's cash flow statement therefore reflects only the cash paid to Talisman for the additional working interest less cash balances acquired. Unitholders' equity was increased by net income of $743 million, but reduced by distributions of $791 million recorded in 2007.