UPDATE 2-Canadian Oil Sands sets 35 pct lower capex budget for 2016

* Sets 2016 capex target of C$295 mln
* Expects C$338 mln free cash flow next year
* Assumes production of 38.6 mln barrels

(Adds CEO comments, details, background)
By Sneha Banerjee
Dec 1 (Reuters) - Canadian Oil Sands Ltd COS.TO set a 2016
capital expenditure budget that was 35 percent lower than what
it expected to spend this year, becoming the latest North
American energy company to further tighten its belt as oil
prices slump.
Canadian Oil Sands said lower production costs at the
Syncrude oil sands project - Canada's largest single-source
producer of synthetic oil - helped it cut its capex target to
C$295 million ($221 million) for 2016 from C$451 million
estimated for 2015.
The company, which owns about 37 percent of the Syncrude
project, is facing a hostile bid from Suncor Energy Inc SU.TO ,
which holds 12 percent of the project.
Canadian Oil Sands will explore options that give its
shareholders a "fair value" for its assets, which is not offered
by Suncor's bid, Chief Executive Ryan Kubik said on a conference
call on Tuesday.
"Syncrude's ability to reduce costs and respond to the lower
oil price environment is exceeding market expectations," Kubik
said in a statement.
As companies brace for a longer-than-expected slump in oil
prices and adjust to the new reality of oil at near $40 per
barrel, they are spending less on drilling and completing new
wells and cutting vendor costs.
Canadian companies including Canadian Natural Resources Ltd
CNQ.TO have outlined smaller budgets for 2016, while top
American shale producers such as Devon Energy Corp (N:DVN) DVN.N have
released preliminary budgets that are sharply lower from 2015.
Canadian Oil Sands said even if West Texas Intermediate
prices remained below $45 per barrel, it could "fully fund all
costs, including capital expenditures and the current dividend."
The company expects to generate C$338 million in free cash
flow, based on the 2016 budget, which assumes production of 38.6
million barrels - about 10 percent higher than that estimated
for 2015.
Syncrude is an important piece in Suncor's C$4.3 billion bid
for Canadian Oil Sands. If the bid succeeds, Suncor will gain
control of nearly half of the project.
Imperial Oil Ltd IMO.TO , Sinopec Corp 0386.HK
600028.SS , CNOOC 0883.HK , Murphy Oil Corp (N:MUR) MUR.N and Nippon
Oil's unit Mocal are the other partners in the project.
Suncor went hostile on Oct. 5. Two days later, Canadian Oil
Sands adopted a poison pill, or shareholder rights plan.
Regulators have granted Canadian Oil Sands' shareholders an
extra month to review the bid.
The company's shares closed at C$8.56 on Monday. Up to
Monday's close, the stock had risen about 38 percent since
Suncor went hostile.
($1 = C$1.33)