Moody's downgrades Canadian Oil Sands to Baa3; Outlook Negative

Moody's Investors Service ("Moody's") downgraded Canadian Oil Sands Limited (COSL)'s senior unsecured rating to Baa3 from Baa2 and the senior unsecured rating on its MTN program to (P)Baa3 from (P)Baa2. The outlook remains negative.

"The downgrade and negative outlook reflects our expectation of elevated leverage metrics through 2016," commented Terry Marshall, Moody's Senior Vice President.

Downgrades:

Baa3 from Baa2

..Issuer: Canadian Oil Sands Limited

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa3 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

..Issuer: Athabasca Oil Sands Investments Inc.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Outlook Actions:

..Issuer: Canadian Oil Sands Limited

....Outlook, Remains Negative

..Issuer: Athabasca Oil Sands Investments Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

COSL's Baa3 senior unsecured rating is driven by Moody's expectation of elevated leverage in the current environment (debt to EBITDA above 6x), tempered by COSL's ability to materially improve credit metrics should WTI pricing improve towards US$60/barrel, as Moody's now assumes for 2017. The rating also considers asset and geographic concentration, ongoing environmental costs and challenges, and past operational challenges at the Syncrude upgrader that have hampered production. The rating favorably reflects the long-life mining oil sands reserves, lower associated maintenance capex (about C$8/barrel) compared to conventional and shale-based E&P operators, and 100% synthetic crude oil production (SCO).

COSL will have good liquidity through the first half of 2016. At June 30, 2015 COSL had cash of C$86 million and C$945 million available on its C$1.54 billion revolving credit facility. The revolver is comprised of a C$1.5 billion tranche maturing June 30, 2019 and a C$40 million tranche maturing June 30, 2017. Moody's expects negative free cash flow of about C$125 million from June 30, 2015 to September 30, 2016, to be largely debt funded. Moody's also expects the company to be well in compliance with its single financial covenant under the credit facility and the 2021 senior notes through this period. COSL has no upcoming debt maturities until 2019. Alternate liquidity is limited to the sale of a portion of COSL's ownership position in Syncrude.

The negative outlook reflects Moody's expectation that debt to EBITDA will remain above 5x through 2016 (assuming US$52/barrel WTI pricing) and that COSL will continue to debt fund negative free cash flow in the current price environment. The outlook could return to stable if debt to EBITDA was likely to remain below 4x.

The ratings could be downgraded to Ba1 if debt to EBITDA was likely to remain above 4x in the medium term, which would likely occur if WTI prices were expected to remain below US$60/bbl.

The ratings could be upgraded to Baa2 if debt to EBITDA was likely to remain below 2x in the medium term, which would likely to occur if WTI prices were expected to rise towards US$70/bbl.

Canadian Oil Sands Limited (COSL) is a publicly-traded company based in Calgary, Alberta. COSL owns the largest working interest (36.74%) in the Syncrude Joint Venture (Syncrude). Syncrude, COSL's sole asset, is a large oil sands mining and upgrading operation in the Fort McMurray area of northern Alberta.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.