Financial Statements and Notes - Canadian Oil Sands

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e) Office lease Canadian Oil Sands entered into a 10-year office lease agreement, beginning December 1, 2002, with a right to terminate the lease after five years. The lease and Canadian Oil Sands’ share of operating costs are paid on a monthly basis. Total annual lease costs, including operating costs, are anticipated to average approximately $370,000 per year over the next four years. f) Tax assessment In December 2002, Canada Customs and Revenue Agency (CCRA) reassessed the 1997 tax year of COSII. The nature of the reassessment pertained to the Syncrude Remission Order (SRO) and the deductibility of certain royalties’ credits. Since December 2002, CCRA has audited the years up to 2000 for both COSII and AOSII. CCRA is still reviewing the SRO reassessments of both companies, but it is expected that there will be no cash income taxes owing on the reassessments. The reassessments will result in changes to various tax pool balances carried forward for deduction in subsequent years, however, the timing of when the assessments will be resolved and the impact on the tax pool balances are not yet determinable. g) Pipeline commitments Canadian Oil Sands has a long-term agreement with Athabasca Oil Sands Pipeline Limited (AOSPL) to transport production from the Syncrude plant gate to Edmonton, Alberta, Canada. The agreement provides for reimbursement on a cost of service basis, including operating expenses, cash taxes paid, and a return on the depreciated rate base. The agreement commits Canadian Oil Sands to pay its proportionate share of the cost of service whether or not it ships any production on the pipeline. The cost of service in 2003, based on Canadian Oil Sands’ varying working interests during the year, was $15.3 million (2002 – $6.4 million, based on a 21.74 per cent Working Interest). The projected cost of service for 2004 is $21 million, based on Canadian Oil Sands’ 35.49 per cent Working Interest at December 31, 2003 and is expected to remain around this level through 2008. h) General Various suits and claims arising in the ordinary course of business are pending against Syncrude Canada Ltd., the agent for the participants. While the ultimate effect of such actions cannot be ascertained at this time, in the opinion of the management, the liabilities which could reasonably be expected to arise from such actions would not be significant in relation to the operations of Syncrude. Syncrude Canada Ltd. as well as Canadian Oil Sands and the other Syncrude Joint Venture owners also have claims pending against various parties, the outcomes of which are not yet determinable. Canadian Oil Sands Trust Annual Report 2003
21. GUARANTEES Canadian Oil Sands has posted performance standby letters of credit with the Province of Alberta which are renewed annually. The letters of credit guarantee to the Province of Alberta the reclamation obligations of Canadian Oil Sands’ interest in future reclamation of the Syncrude mine sites. The Province of Alberta can draw on the letters of credit if Syncrude fails to perform its reclamation duties on its mine sites. The maximum potential amount of payments Canadian Oil Sands may be liable for pursuant to these letters of credit is $31 million. Canadian Oil Sands accrues a future site reclamation liability, which was $57.6 million at December 31, 2003. 22. CONTINGENT GAIN In preparing its 2002 income tax returns, Canadian Oil Sands found that there was an error in the 2001 Trust tax return prepared by its former service provider, PanCanadian Petroleum Limited (PanCanadian). In April of 2003, Canadian Oil Sands disclosed this error to CCRA and undertook discussions with CCRA to rectify the incorrect filing. EnCana (successor in interest to PanCanadian) was advised of the error in April and has been in discussions with Canadian Oil Sands regarding the error since that time. In September 2003, CCRA provided their decision regarding the issue, which resulted in the Trust paying approximately $9 million for the tax liability related to the 2001 filing error, and approximately $1 million in interest that had accrued on the liability. As Canadian Oil Sands believes the tax liability was resultant of an incorrect tax filing by its former tax service provider, it is taking action to recover the $10 million cash payment from EnCana. The amount of the potential cash recovery was not determinable at December 31, 2003, and therefore, is considered to be a contingent gain. No amounts pertaining to the contingent gain have been recorded in the consolidated financial statements at December 31, 2003. 23. SUBSEQUENT EVENT On January 15, 2004, COSL issued $20 million of floating rate unsecured medium term notes as well as $175 million of 3.95% unsecured medium term notes. Both of the floating rate and 3.95% medium term notes mature on January 15, 2007, rank pari passu with other senior unsecured debt of COSL, and are guaranteed by the Trust. The 3.95% notes were swapped into floating rate debt with two interest rate swaps. 24. RECLASSIFICATION Certain prior year’s figures have been reclassified to conform to the presentation adopted for 2003. 75 Notes to Consolidated Financial Statements
Page 1 and 2: Consolidated Financial Statements a
Page 3 and 4: AUDITORS’ REPORT To the Unitholde
Page 5 and 6: CONSOLIDATED BALANCE SHEETS As at D
Page 7 and 8: NOTES TO CONSOLIDATED FINANCIAL STA
Page 9 and 10: Stock-based compensation Canadian O
Page 11 and 12: Currently, Canadian Oil Sands has a
Page 13 and 14: Canadian Oil Sands’ share of Sync
Page 15 and 16: c) 5.8% Senior Notes On August 6, 2
Page 17 and 18: Canadian Oil Sands’ income taxes
Page 19 and 20: a takeover bid to acquire 20 per ce
Page 21 and 22: ) Syncrude Incentive Phantom Share
Page 23 and 24: In 2003, Canadian Oil Sands settled
Page 25: Canadian Oil Sands also has posted

Financial Statements and Notes - Canadian Oil Sands

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