The Trust is planning to provide fuller payout of cash from operating activities unless capital investment or acquisition opportunities arise that we believe offer Unitholders enhanced value. The Trust’s financial plan also targets a long-term net debt target of about $1.6 billion by the end of 2010 under current market conditions. We believe this net debt target will help conserve tax deductions prior to trust taxation. The target is based on Syncrude’s existing productive capacity and we will reconsider this target in light of future Syncrude growth and other acquisition opportunities, which may increase productive capacity.

Cash from operating activities and net income can fluctuate dramatically from period to period reflecting, among other things, variability in operational performance, WTI prices, SCO differentials to WTI and FX rates.  The Trust has strived to smooth out the effect of this variability on distributions by taking a longer-term view of: our outlook for our operating and business environment, our net debt level relative to our target, and our capital expenditure and other commitments. In that regard, we may distribute more or less in a period than we generate in cash from operating activities or net income.  Nonetheless, the highly variable nature of our cash from operating activities introduces risk in our ability to sustain or provide stability in distributions and any expectations regarding the stability or sustainability of distributions are unwarranted and should not be implied. 

Furthermore, as the Trust executes its financial plan, investors should anticipate increased variability in distributions and understand that distribution levels may not be as sustainable once we have met the net debt target. As distributions rise to a larger percentage of cash from operating activities, the distributions will necessarily be more reflective of business performance and crude oil prices. 

The Trust uses debt and equity financing to the extent that cash from operating activities is insufficient to fund distributions, capital expenditures, reclamation trust contributions, acquisitions and working capital changes from financing and investing activities.

The taxation of income trusts commencing January 1, 2011 likely will materially alter our cash from operating activities, and consequently distribution levels. Canadian Oil Sands continues to evaluate alternatives as to the best structure for its Unitholders in the future. The federal government has confirmed that it intends to allow conversions from a trust to a corporate structure to occur on a tax-deferred basis, although the rules of such a conversion have yet to be established.  Under current expectations, we most likely will convert to a corporate structure.  We plan, however, to retain the flow-through advantages of a trust structure until 2011, unless circumstances arise that favour a faster transition to an alternate structure.  Canadian Oil Sands continues to be a long-term value investment in the oil sands and does not rely on the tax efficiency of a flow-through trust model to sustain its business. Our long-life reserves and non-declining production profile provide a solid foundation to generate future cash from operating activities.

Quarterly distributions are approved by our board of directors after considering the current and expected economic conditions, ensuring financing capacity for Syncrude’s expansion projects and/or Canadian Oil Sands acquisitions, and with the objective of maintaining an investment grade credit rating.

A summary of the distributions paid since inception, as well as the tax treatment, is provided under Canadian Summary, for unitholders who are residents of Canada, and U.S. Summary for unitholders who are residents of the U.S.