Canadian Oil Sands Ltd. (TSX:COS) is a popular pick with investors who have strong ideas about the future direction of crude prices. In fact, the volatility in the stock has provided opportunities for both bulls and bears to make some money in recent months.

With oil holding its recent gains, new buyers are starting to kick the tires, but analysts are still unsure if the recovery in oil prices is here to stay.

Let’s take a look at the current situation of Canadian Oil Sands to see if the stock deserves a spot in your portfolio.

Q1 results

Canadian Oil Sands reported a net loss of $186 million for the first quarter, which was mostly caused by unrealized foreign exchange losses on the company’s U.S.-dollar denominated long-term debt. Sales brought in $76 million, a sharp decrease from $357 million in Q1 2014 due to a 47% drop in the average selling price per barrel of oil.

Investors knew the revenue side would be brutal, but the more important items to focus on are the company’s efforts to bring down operating costs and reduce capital outlays.

Canadian Oil Sands is the largest shareholder of Syncrude, a massive oil sands operation that has been plagued with operational issues for the better part of the past three years.

The company is working hard to reduce expenses and improve productivity, and those efforts are starting to bear fruit. Syncrude had Q1 operating expenses of $35.71 per barrel compared to $46.91 in the same quarter last year.

The improvement is attributed to better-than-expected progress on cost reduction initiatives as well as lower natural gas and diesel expenses. The company now expects to hit the midpoint of this year’s $260-400 million cost-savings target.

Capital expenditures in the first quarter totaled $73 million, down significantly from $217 million in Q1 2014. The company is wrapping up a number of capital projects, and management expects to see more consistent production moving forward.

One important takeaway from the first quarter is the fact that cash flow from operations covered the capital expenditures, but it still wasn’t enough to cover the dividend.

Debt watch

Canadian Oil Sands still has $2.3 billion in long-term debt. The weakening of the Canadian dollar during the first quarter had a negative impact and resulted in a long-term debt-to-total capitalization ratio of 35%, up from 30% a year earlier.

Canadian Oil Sands has to keep this number below 55% to avoid breaking its covenants. At the moment, the company still has lots of room and the Canadian dollar is regaining some of its lost ground.

2015 outlook

Canadian Oil Sands is maintaining its production target of 95-110 million barrels of oil with a single point estimate of 103 million barrels. The company is counting on WTI oil prices to average US$55 per barrel for the year. With an expected exchange rate of $0.82 CAD:USD, management expects the average realized synthetic crude oil selling price to be about $63 per barrel.

Operating expenses for the year are now trending toward $40 per barrel.

Cash flow from operations is expected to be $407 million for the year. Capital expenditures will absorb $429 million and the current dividend payout will eat up another $96 million.

Should you buy?

Management is making good progress in its turnaround efforts, but operating costs per barrel remain high and the company’s cash flow still isn’t covering its outlays.

If WTI oil prices stay at current levels or continue to improve, the company should able to keep its head above water, but any renewed weakness in crude prices could send the stock sharply lower. At this point, I would still look elsewhere to deploy your investment dollars.

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Fool contributor Andrew Walker has no position in any stocks mentioned.