DBRS Rates Canadian Oil Sands Trust at STA-4 (high)p

Dominion Bond Rating Service (“DBRS”) has today assigned the stability rating to Canadian Oil Sands Trust (“COS” or the “Trust”) as indicated above.

The assigned rating is above the “STA-5 and lower” range for the larger conventional oil and gas income trusts (“Conventional Trusts”) rated by DBRS, reflecting the following strengths:

(1) The Trust shares in long life reserves (over 30 years based on proven reserves), which are well defined with low exploration risk. Due to its superior asset base, per unit reserves have remained stable, compared to the declining reserves for the Conventional Trusts.

(2) Similarly, per unit production performance has remained strong with approximately 50% expected growth in production, following the completion of the Stage 3 expansion (“Stage 3” – about 90% complete). Further internal expansion opportunities exist, compared to most of the Trust’s peers who depend on purchased assets to maintain production.

(3) The Trust’s relatively conservative payout ratio of operating cash flow (30% in 2004) and low maintenance capex provide a measure of stability in the event of softening oil prices, relative to the 75% average payout and high maintenance for its peer group.

Limitations for the Trust include the balance sheet leverage, particularly the high debt/cash flow (2.84 times for the 12 months to June 30, 2005), which is aggressive given the underlying risk of volatile crude prices. However, DBRS expects management’s targeted leverage at the low 30% level to be achieved within two years, based on oil prices per barrel of above US$45/US$35 in 2005/2006, respectively. The integration of the new coker into the system could present problems, although partly mitigated by the experienced operation team helped by the strong partners in Syncrude Canada Limited. The high fixed-cost structure with the remaining costs tied mainly to natural gas prices (20% of operating costs in 2004), combined with the volatile commodity prices, can result in significant fluctuations in earnings and cash flow. In addition, cash available after distributions has been insufficient to fund the substantial Stage 3, requiring significant external financing.

The onset of Stage 3 should improve efficiency and generate sufficient cash flow to cover distributions and the projected capex of Cdn$207 million for 2006 (Cdn$670 million planned for 2005), helped by the favourable market conditions. Future maintenance capex estimated at under Cdn$200 million will likely be funded internally, should prices fall below US$30 per barrel.

Note:
p - This rating is based on public information.