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Syncrude's oil sands up-grader facility located north of Fort McMurray, Alberta is seen in an aerial photograph Aug. 31/2010

Kevin Van Paassen/The Globe and Mail

Canadian Oil Sands Ltd. is cutting its quarterly dividend by 42 per cent as it aims to protect its balance sheet in a gloomy oil price environment.

The Calgary-based firm, whose main asset is a 37 per cent stake in the massive Syncrude oil sands mine north of Fort McMurray, Alta., said it plans to reduce its dividend to 20 cents from 35 cents when it reports its fourth-quarter earnings in late January.

Company shares dropped about 16 per cent in early trade in Toronto.

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With the current dividend level, Canadian Oil Sands said its net debt would grow at a pace that would quickly exceed $2 billion. It sees the dividend cut as a "prudent step to preserve balance sheet strength and provide flexibility in this lower oil price environment."

Crude prices have fallen by more than a third to below US$70 a barrel since the summer, putting pressure on firms like Canadian Oil Sands that have little buffer against the commodity price volatility.

Canadian Oil Sands says its 2015 plans are based on an average U.S. benchmark oil price of US$75 a barrel.

It assumes Syncrude will produce 103 million barrels throughout the year, about six per cent higher than 2014 estimated output.

Its capital spending is expected to be $564 million, down from its $938 million estimate for this year. The drop comes as major projects are wrapped up at Syncrude.

"With this budget, we are delivering a lower capital expenditure profile following significant reinvestment at Syncrude," said CEO Ryan Kubik.

"The completion of Syncrude's major capital projects greatly reduces the financing and execution risk in our business, positioning COS as a lower-risk, long-life crude oil investment."

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Canadian Oil Sands will be hosting a conference call on Thursday to discuss its 2015 plans.

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