Canadian Oil Sands Valuable. For the Long Term. Investor Presentation January 2016

Transcription

1 Canadian Oil Sands Valuable. For the Long Term. Investor Presentation January 2016

2 Reasons to Reject Suncor s Hostile Bid Significantly Undervalued: - Fails to recognize a new era of lower cost production - Assumes the collapse of oil prices will last forever; but no one not even Suncor believes that - Asks COS shareholders to give away the highly valuable upgrader for free - Offers no value for Lease 29, a far superior replacement for Suncor s soon-to-be depleted North Steepbank mine Highly Opportunistic: - COS share price is at historic lows, having traded above the current level about 97% of the time over the past 10 years - Bid is designed to take advantage of an unprecedented period of uncertainty in oil markets A full share of COS is worth more than a quarter share of Suncor The alternative to Suncor s bid is compelling and clear: Independence 2

3 COS Valuable Syncrude Asset 1. Pure-play exposure to a scarce, irreplaceable oil sands mining asset in a low-risk, geopolitically stable country 2. Fully upgraded production of light sweet crude oil 3. Cost structure expected to generate positive free cash flow 1 above US$39 WTI 2 4. Long-life, non-declining asset base with low go-forward capital requirements 5. High quality leases border every oil sands mining project Unique, impossible to replicate investment opportunity (1) Free cash flow is a Non-GAAP Financial Measure. See Additional GAAP and Non-GAAP Financial Measures advisory. (2) Assumes currency exchange rate of 0.72 US$/C$. 3

4 COS Remains Focused on What Matters 1. Reducing operating, capital and administrative costs and protecting the balance sheet 2. Capitalizing on Imperial Oil and Exxon Mobil s expertise in executing Syncrude s production improvement plan, aiming to reach 90% utilization by the end of the decade 3. Unlocking value from other strategic opportunities such as a sale or swap of Lease 29 and/or other leases 4. Positioning the company and our shareholders to realize the benefits of our unparalleled leverage to rising oil prices 4

5 Syncrude s New Era of Lower Costs Operating Expenses (C$/bbl) Capital Expenditures (C$ millions) 1 Syncrude reduced operating and capital costs by more than $1.3 billion (gross to Syncrude) from the original 2015 budget Cost reductions are expected to continue into future years Completion of major projects ensures low sustaining capital through 2019 (1) Based on 2015 Guidance as at October 19, 2015, adjusted for revised production forecast of 90 million barrels, gross to Syncrude. 5

6 Cost Structure Has Improved Dramatically Total Cash Costs 1 (US$/bbl) COS total cash costs have decreased to approximately US$39 per barrel Fully-upgraded synthetic crude oil (SCO) attracts a 40 to 55% higher sales price than bitumen Established, non-declining production (1) Total Cash Costs is a Non-GAAP Financial Measure. See Additional GAAP and Non-GAAP Financial Measures advisory. (2) Includes Major Projects capital expenditures. (3) Based on 2015 Guidance as at October 19, 2015, adjusted for revised production forecast of 90 million barrels (gross to Syncrude). (4) Based on 2016 Budget as at December 1, 2015, adjusted for revised foreign exchange rate of 0.72 US$/C$. (5) COS forecast. Assumes foreign exchange rate of 0.72 US$/C$. 6

7 Oil Sands Project Break-Even US$WTI Price 1,2 Average oil sands breakeven US$ WTI price Cost reduction efforts combined with Syncrude s valuable upgrader position COS favorably amongst oil sands peers (1) Consistent with analysis by TD Securities this assumes foreign exchange rate of 0.73 US$/C$ (2) Break-Even Price is a Non-GAAP Financial Measure. See Additional GAAP and Non-GAAP Financial Measures advisory. 7 Source: TD Securities, COS estimates

8 Strong Financial Position COS is one of only 7 Canadian exploration and production (E&P) companies with an investment grade credit rating (out of 122 publicly listed Canadian E&P companies with a market capitalization over $10 million) No debt maturities until 2019 Credit facilities totalling $1.5 billion committed to 2019 ($1.1 billion undrawn at December 31, 2015) Canadian Oil Sands resilient in a lower for longer oil price environment 8

9 Ample Available Liquidity COS 2016 Budget forecasts $633 million of cash flow from operations and $338 million of free cash flow 1 (Assuming US$50 WTI, 105 million bbls of Syncrude production and 0.75 US$/C$ exchange rate) Budgeted 2016 break-even costs are ~US$39 per barrel (Based on 2016 Budget assumptions adjusted for a 0.72 US$/C$ exchange rate) The chart illustrates the after tax liquidity required/generated for a given change in a key assumption Change in Available Liquidity 2 Sensitivity +/- US$5 per bbl WTI +/- 5 MM bbls Syncrude Production +/- 2.5 Cents US$/C$ Exchange Rate +/- 5% Syncrude Production Costs ($millions) ,100 1,250 1,400 Available Liquidity at 12/31/2015 COS has significant available liquidity in the current environment (1) For 2016 Budget and detailed underlying assumptions; see the December 1, 2015 guidance document. (2) Generated using after tax sensitivities as reported in the 2016 Budget; see the December 1, 2015 guidance document. (3) Free cash flow is a Non-GAAP measure. See Additional GAAP and Non-GAAP Financial Measures advisory. 9

10 A Modest Improvement in Oil Prices Significantly Increases COS 2016 Free Cash Flow per Share 1 $0.20 $0.29 $0.28 $0.70 $1.00 $1.28 $1.54 $1.79 $2.02 Current COS Dividend Implied Current Suncor Dividend US$45 WTI US$50 WTI US$55 WTI US$60 WTI US$65 WTI US$70 WTI US$75 WTI Source: Canadian Oil Sands. COS is uniquely positioned to benefit from a recovery given its unparalleled leverage to oil prices (1) Free cash flow per share is a Non-GAAP Financial Measure. See Additional GAAP and Non-GAAP Financial Measures advisory. Implied current Suncor dividend assumes $0.29 per common share quarterly dividend and 0.25 exchange ratio per Suncor offer. Assumes currency exchange rate of 0.75 US$/C$. 10

11 COS Provides Dramatically More Exposure to Oil Price Increases COS Share Price and Suncor Offer Price Sensitivity to WTI (Last 5 Years) COS Share Price $28.31 $30.05 $31.59 $ of Suncor s Share Price $17.38 $13.48 $12.07 $9.70 $9.44 $9.98 $10.17 $9.91 $10.97 $8.23 $8.18 $8.60 $8.94 $7.84 $5.76 $6.19 $16.03 $19.23 $19.75 $18.30 $10.86 $11.27 $11.52 $11.69 $6.32 $6.85 $7.00 $7.26 $35 - $45 $45 - $55 $55 - $65 $65 - $75 $75 - $85 $85 - $95 $95 - $100 >$100 $35 - $45 $45 - $55 $55 - $65 $65 - $75 - $75 WTI Range (US$/bbl) $85 $85 - $95 $95 - $100 >$100 Source: As per Bloomberg; share price performance between October 2, 2010 to October 2, 2015 At all WTI prices above US$45 in the last 5 years, COS share price greatly exceeded Suncor s quarter share offer price Tendering to Suncor s offer means sacrificing the benefit of rising oil prices COS shares could be worth double the Suncor offer with only a modest improvement in WTI prices 11

12 $ per share Strong Dividend Paying History Cumulative Capital Returned to Shareholders Since 2001 $18 $16 $16.85 $14 $12 $10 $8 $6 $4 $2 $0 COS Dividends $2.28 Suncor Dividends + Share Buybacks 1 Source: Canadian Oil Sands, Suncor public disclosure Since 2001 COS has returned $16.85 per share as dividends; had COS shareholders instead owned 0.25 of a Suncor share over that period, they would have only received $2.28 as dividends and share buybacks COS has a superior record of returning capital to shareholders (1) Suncor s cumulative dividends per share plus share buybacks per share, converted at the 0.25 exchange ratio per Suncor offer. 12

13 COS is Strongly Positioned to Withstand Low Oil Prices and Emerge With Even Greater Value 1. A strong balance sheet with significant financial flexibility - over $1 billion of its $1.5 billion credit facility still available, and no long-term debt maturities until Positive free cash flow 1 at WTI oil prices above US$39 and benefiting from operating cost reductions and the recent completion of major projects capital investment 3. Unparalleled oil price leverage; even a modest increase in oil prices would be expected to significantly increase COS free cash flow 1 available for debt repayment and dividends 4. A proven cash-generating business that returns cash to shareholders 5. A premier oil sands mining lease position, located in the heart of the mining region, and an upgrader that converts all bitumen into light, sweet crude oil that receives a premium price 6. Suite of value-enhancing opportunities available to, and under consideration by, Syncrude and its owners (1) Free cash flow is a Non-GAAP Financial Measure. See Additional GAAP and Non-GAAP Financial Measures advisory. 13

14 Additional Information

15 COS Share Price C$ Why Sell at the Bottom? $60 $50 COS correlation to US$ WTI is ~98% 1 $180 $150 $40 $120 $30 $90 US$ WTI $20 $60 $10 $30 $0 $0 Dec-2005 Dec-2007 Dec-2009 Dec-2011 Dec-2013 Dec-2015 Source: As per Bloomberg as at December 15, 2015 COS Share Price C$ Current SU Offer US$ WTI Giving up unique, irreplaceable and low-risk exposure to the price of light oil today, when oil prices are in a trough, is the exact opposite of what long-term investors should be doing. (1) For the period Jan. 1, 2014 October 2, 2015 (2) Based on Suncor share price of $35.13 and exchange ratio of 0.25 Burgundy Asset Management, Not the Time to Sell ; December

16 Syncrude s Strategic Lease Position High quality leases border every oil sands mining project This strategic location creates multiple opportunities to share value with other projects in the region Source: RBC Capital Markets. 1.6 billion barrels of proved plus probable reserves and 1.7 billion barrels of contingent resources (net to COS) all upgraded light, sweet crude oil Based on independent reserves and resources estimates by GLJ Petroleum Consultants, Ltd. as of Dec. 31/14. See reserves and resources cautionary advisory in COS Annual Information Form dated Feb. 24/15 and definitions and forward-looking information advisory. 16

17 Syncrude s Undeveloped Leases Have Significant Value Lease 29 is contiguous with Suncor s North Steepbank mine The sale of Lease 29 to Suncor was being discussed; billions of dollars of value could be derived Suncor is not paying COS shareholders for this value Syncrude Suncor Syncrude s Lease 29 Continue mining Minimal capital Higher quality and larger ore body Suncor s North Steepbank mine Exhausted early 2020s Suncor s Voyageur South Lease Develop new mine Significant capital Lower quality and smaller ore body New environmental footprint Lease 29 would allow Suncor to avoid significant required capital to develop its Voyageur South mine once its North Steepbank mine is exhausted Not to scale. For illustrative purposes only. Sources: Canadian Oil Sands; Suncor s Voyageur South Mine Fact Sheet. There is significant unrecognized value in COS undeveloped leases 17

18 Decades of Visible, Non-Declining Production Anticipated production improvements are a free option for COS shareholders Syncrude owners have endorsed the plan underway for improving reliability and increasing production 18

19 Production Improvement Plan is Underway Bitumen Production Hydrotreating Upgrading Pipe and Vessel Leaks Lost Barrels 1 Initiative / Project Completed Rebuild, redesign and expand mine trains 11 - Retrofit, reconfigure and debottleneck froth centrifuges 13 - Replace heat exchangers in hydrogen plants 6 - Modifications to CO boiler design Current Focus 6 2 Coker performance Current Focus 8 3 Turnaround execution Current Focus 14 2 Inspect critical pipes and vessels Current Focus The disciplined, methodical reliability plan, endorsed by Syncrude s owners, is systematically reducing historical outages Syncrude has made significant progress on its production improvement plan: - Identifying root causes of outages - Replacing, modifying and reconfiguring equipment as required - Developing stronger leaders and a well-trained and engaged workforce (1) Millions of barrels, gross to Syncrude 19

20 Advisories Suncor Offer Certain information in this presentation relating to Suncor Energy Inc. ( Suncor ) and the Suncor offer to purchase all of the common shares ( Common Shares ) of Canadian Oil Sands Limited (the Corporation ) has been derived from the Suncor offer and bid circular dated October 5, 2015, as amended and extended and other public sources. Neither the board of directors of the Corporation nor the Corporation independently verified such information or assumes any responsibility for the accuracy or completeness of such information or for any failure by Suncor to disclose events that may have occurred or that may affect the significance or accuracy of any such information. Forward-Looking Information This presentation, including the discussion of the reasons for the board of directors unanimous recommendation that shareholders of the Corporation ( Shareholders ) reject the Suncor offer and not tender their Common Shares, contains forward-looking information (as defined in the Securities Act (Alberta)) and statements (collectively, forward-looking statements ) that are based on expectations, estimates and projections as of the date of this presentation. These forward-looking statements can often, but not always, be identified by the use of forward-looking terminology such as plans, predicts, expects or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases, or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Examples of such forward-looking statements in this presentation include, but are not limited to: views regarding future oil prices; expectations regarding Lease 29; expectations regarding future cash flow from operations and future free cash flow and free cash flow per share generated by the Corporation; the anticipated impact of oil prices, Syncrude production, foreign exchange and Syncrude production costs on the Corporation s liquidity; the Corporation s and Syncrude s expectations for future profitability; expectations with respect to production, capital expenditures and operating expenses at Syncrude and for the Corporation; expectations regarding future utilization at Syncrude; the Corporation s and Syncrude s break-even price; the amount of reserves recoverable and the time frame to recover such reserves; the estimated resources; the impact of rising oil prices on the price of the Corporation s Common Shares and the belief that the Corporation s shareholders will benefit far more than Suncor shareholders from rising oil prices; expectations regarding the ability of the Corporation to pay dividends; and expectations with respect to the Corporation s liquidity. Although the Corporation believes that the assumptions and expectations represented by such forward-looking statements are reasonable and reflect the current views of the Corporation with respect to future events, there can be no assurance that such assumptions and expectations will prove to be correct. The factors or assumptions on which the forward-looking statements are based include, but are not limited to: the assumptions outlined in the Corporation s 2015 and 2016 guidance documents as posted on the Corporation s website at as of the date hereof and as subsequently amended or replaced from time to time, including without limitation, the assumptions as to production, operating expenses, capital expenditures and oil prices; the successful and timely implementation of capital and maintenance projects; Syncrude s business, maintenance and spending plans; the ability to obtain regulatory and joint venture owner approval; the continuation of assumed tax, royalty and other legislative and regulatory regimes; and the accuracy of the estimates of the reserves and resources. In addition to being subject to a number of assumptions, forward-looking statements in this presentation involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements. Some of the risks and other factors which could cause actual results or events to differ materially from current expectations expressed in the forward-looking statements contained in this presentation include, but are not limited to: volatility of crude oil prices; volatility of the synthetic crude oil ( SCO ) to West Texas Intermediate differential; the impact of the anticipated Syncrude cost reductions not materializing; the impact that pipeline capacity and apportionment and refinery demand have on prices for SCO and the 20

21 Advisories Corporation s ability to deliver SCO; the impacts of legislative and regulatory changes especially those which relate to royalties, taxation, tailings, water and the environment; the impact of new technologies on the cost of oil sands mining; the impacts of rising costs associated with tailings and water management; the inability of Syncrude to obtain required consents, permits or approvals, including without limitation, the inability of Syncrude to obtain approval to return water from its operations; various events which could disrupt operations including fires, equipment failures and severe weather; unsuccessful or untimely implementation of capital or maintenance projects; the impact of technology on operations and processes and how new technology may not perform as expected; the obtaining of required joint venture owner approvals from the Syncrude owners for expansions, operational issues and contractual issues; labour turnover and shortages and the productivity achieved from labour in the Fort McMurray area; uncertainty of estimates with respect to reserves and resources; the supply and demand metrics for oil and natural gas; the variances of stock market activities generally; currency and interest rate fluctuations; volatility of natural gas prices; the Corporation s inability to either generate sufficient cash flow from operations to meet its current and future obligations or obtain external sources of debt and equity capital; general economic, business and market conditions; and such other risks and uncertainties described in the Corporation s Annual Information Form dated February 24, 2015 and in the reports and filings made with securities regulatory authorities from time to time by the Corporation which are available on the Corporation s profile on SEDAR at and on the Corporation s website at You are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the forward-looking statements contained in this presentation are made as of the date of this presentation and unless required by law, the Corporation does not undertake any obligation to update publicly or revise any of the included forwardlooking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Additional GAAP and Non-GAAP Financial Measures In this presentation, reference is made to additional GAAP and non-gaap financial measures that do not have any standardized meaning as prescribed by GAAP. Additional GAAP financial measures are line items, headings or subtotals in addition to those required under GAAP, and financial measures disclosed in the notes to the financial statements which are relevant to an understanding of the financial statements and are not presented elsewhere in the financial statements. Non-GAAP and additional GAAP measures have been described and presented in order to provide Shareholders with additional measures for analyzing the Corporation s operational performance, its ability to generate funds to finance its operations and information regarding its liquidity. Users are cautioned that non-gaap and additional GAAP financial measures presented by the Corporation may not be comparable with measures provided by other entities. Additional GAAP financial measures include: cash flow from operations (which is calculated as cash from operating activities before changes in non-cash working capital). For more information on additional GAAP financial measures please refer to our 2015 Third Quarter MD&A which is available on the Corporation s profile on SEDAR at and on the Corporation s website at Non-GAAP financial measures include: free cash flow (which is calculated as cash from operating activities before changes in non-cash working capital less capital expenditures), free cash flow per share (which is calculated as cash flow from operations before changes in non-cash working capital less capital expenditures, divided by the weighted-average number of shares outstanding in the period), total cash costs (cash costs includes operating expenses, development expenses, Crown royalties, interest expense, administration, insurance, reclamation and current tax expense) and the break-even price (as described in this presentation). 21

22 Advisories Oil and Gas Information Unless otherwise stated, reserves and resources figures in this presentation refer to the Corporation s reserves and resources as at December 31, 2014 as prepared by the Corporation s independent reserves evaluator. For more information on the Corporation s reserves and resources please refer to the Corporation s Annual Information Form dated February 24, 2015 which is available on the Corporation s profile on SEDAR at and on the Corporation s website at probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves. proved plus probable reserves are those additional reserves that are less certain to be recovered than proved reserves. NI defines the certainty level as at least a 50 per cent probability that the quantities actually recovered will equal or exceed the sum of the estimated proved plus probable reserves. Therefore, under NI , the proved plus probable reserves represent a best estimate or expected reserves. proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. NI further identifies the certainty level for proved reserves as at least a 90 per cent probability that the quantities actually recovered will equal or exceed the estimated proved reserves. contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. NI means National Instrument Standards of Disclosure for Oil and Gas Activities. 22