Forward Hedging Sees Oil Price Slip

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One of the partners in the Canada's Syncrude synthetic oil plant late last week reported a forward hedging strategy to fund part of its capital cost commitment to Syncrude's aggressive expansion plans that shows a cautious view of future oil prices. Canadian Oil Sands, the product of the merger of Athabasca Oil Sands Trust and Canadian Oil Sands Trust this July, holds 21.74% of the 260,000 b/d Syncrude plant. Canadian Oil Sands sold forward 16,000 b/d of its 2002 and 2003 production and 8,000 b/d of its 2004 production at prices of US$24.95 per bbl., $23.10 and $22 respectively in fixed price contracts. Proceeds from the forward sales will be combined with $250 million in Senior notes and $490 million in credit facilities to fund the majority of its $900 million share of the 4.1 billion Syncrude 21 Stage 3 expansion of the Fort McMurray facility. Syncrude 21 is slated to add 105,000 b/d to productive capacity at the Syncrude facility by the end of 2004. With over $800 million available from the forward sales and credit facilities, Canadian Oil Sands intends to distribute a significant portion of operating cash flow to its 57 million unitholders.

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