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Unaudited Consolidated Financial Statements for the first quarter ended March 31, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three months ended March 31 | |||||||
($ millions) | 2015 | 2014 | |||||
Revenues and Other Income | |||||||
Operating revenues, net of royalties (note 3) | 7 129 | 10 342 | |||||
Other income (note 4) | 257 | 135 | |||||
7 386 | 10 477 | ||||||
Expenses | |||||||
Purchases of crude oil and products | 2 772 | 3 729 | |||||
Operating, selling and general | 2 295 | 2 456 | |||||
Transportation | 267 | 257 | |||||
Depreciation, depletion, amortization and impairment | 1 333 | 1 140 | |||||
Exploration | 183 | 126 | |||||
Loss on disposal of assets | 2 | — | |||||
Financing expenses (note 7) | 1 138 | 471 | |||||
7 990 | 8 179 | ||||||
(Loss) Earnings before Income Taxes | (604 | ) | 2 298 | ||||
Income Taxes | |||||||
Current | 184 | 811 | |||||
Deferred (note 8) | (447 | ) | 2 | ||||
(263 | ) | 813 | |||||
Net (Loss) Earnings | (341 | ) | 1 485 | ||||
Other Comprehensive Income | |||||||
Items that may be subsequently reclassified to earnings | |||||||
Foreign currency translation adjustment | 386 | 192 | |||||
Items that will not be reclassified to earnings | |||||||
Actuarial loss on employee retirement benefit plans, net of income taxes of $10 (three months ended March 31, 2014 – $20) | (30 | ) | (60 | ) | |||
Other Comprehensive Income | 356 | 132 | |||||
Total Comprehensive Income | 15 | 1 617 | |||||
Per Common Share (dollars) (note 9) | |||||||
Net (loss) earnings – basic | (0.24 | ) | 1.01 | ||||
Net (loss) earnings – diluted | (0.24 | ) | 1.01 | ||||
Cash dividends | 0.28 | 0.23 | |||||
See accompanying notes to the interim consolidated financial statements.
SUNCOR ENERGY INC. 2015 FIRST QUARTER 37
CONSOLIDATED BALANCE SHEETS
(unaudited)
($ millions) | Mar 31 2015 | Dec 31 2014 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | 4 825 | 5 495 | |||||
Accounts receivable | 4 154 | 4 275 | |||||
Inventories | 3 366 | 3 466 | |||||
Income taxes receivable | 1 197 | 680 | |||||
Total current assets | 13 542 | 13 916 | |||||
Property, plant and equipment, net | 60 455 | 59 800 | |||||
Exploration and evaluation | 2 276 | 2 248 | |||||
Other assets | 608 | 598 | |||||
Goodwill and other intangible assets | 3 083 | 3 083 | |||||
Deferred income taxes | 29 | 26 | |||||
Total assets | 79 993 | 79 671 | |||||
Liabilities and Shareholders' Equity | |||||||
Current liabilities | |||||||
Short-term debt | 948 | 806 | |||||
Current portion of long-term debt | 35 | 34 | |||||
Accounts payable and accrued liabilities | 5 331 | 5 704 | |||||
Current portion of provisions | 757 | 752 | |||||
Income taxes payable | 1 023 | 1 058 | |||||
Total current liabilities | 8 094 | 8 354 | |||||
Long-term debt | 13 364 | 12 489 | |||||
Other long-term liabilities | 1 762 | 1 787 | |||||
Provisions (note 12) | 5 301 | 4 895 | |||||
Deferred income taxes | 10 200 | 10 543 | |||||
Shareholders' equity | 41 272 | 41 603 | |||||
Total liabilities and shareholders' equity | 79 993 | 79 671 | |||||
See accompanying notes to the interim consolidated financial statements.
38 SUNCOR ENERGY INC. 2015 FIRST QUARTER
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31 | |||||||
($ millions) | 2015 | 2014 | |||||
Operating Activities | |||||||
Net (loss) earnings | (341 | ) | 1 485 | ||||
Adjustments for: | |||||||
Depreciation, depletion, amortization and impairment | 1 333 | 1 140 | |||||
Deferred income taxes | (447 | ) | 2 | ||||
Accretion | 52 | 51 | |||||
Unrealized foreign exchange loss on U.S. dollar denominated debt | 962 | 357 | |||||
Change in fair value of derivative contracts | 148 | 11 | |||||
Loss on disposal of assets | 2 | — | |||||
Share-based compensation | (148 | ) | (54 | ) | |||
Exploration | 49 | 22 | |||||
Settlement of decommissioning and restoration liabilities | (133 | ) | (110 | ) | |||
Other | (2 | ) | (24 | ) | |||
(Increase) in non-cash working capital | (599 | ) | (1 147 | ) | |||
Cash flow provided by operating activities | 876 | 1 733 | |||||
Investing Activities | |||||||
Capital and exploration expenditures | (1 326 | ) | (1 490 | ) | |||
Proceeds from disposal of assets | 40 | 16 | |||||
Other investments | (4 | ) | (9 | ) | |||
(Increase) decrease in non-cash working capital | (47 | ) | 15 | ||||
Cash flow used in investing activities | (1 337 | ) | (1 468 | ) | |||
Financing Activities | |||||||
Net change in debt | 58 | (5 | ) | ||||
Issuance of common shares under share option plans | 34 | 53 | |||||
Purchase of common shares for cancellation (note 6) | — | (384 | ) | ||||
Dividends paid on common shares | (405 | ) | (338 | ) | |||
Cash flow used in financing activities | (313 | ) | (674 | ) | |||
(Decrease) in Cash and Cash Equivalents | (774 | ) | (409 | ) | |||
Effect of foreign exchange on cash and cash equivalents | 104 | 53 | |||||
Cash and cash equivalents at beginning of period | 5 495 | 5 202 | |||||
Cash and Cash Equivalents at End of Period | 4 825 | 4 846 | |||||
Supplementary Cash Flow Information | |||||||
Interest paid | 76 | 72 | |||||
Income taxes paid | 792 | 1 125 | |||||
See accompanying notes to the interim consolidated financial statements.
SUNCOR ENERGY INC. 2015 FIRST QUARTER 39
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
($ millions) | Share Capital | Contributed Surplus | Accumulated Other Comprehensive Income | Retained Earnings | Total | Number of Common Shares (thousands) | |||||||
At December 31, 2013 | 19 395 | 598 | 115 | 21 072 | 41 180 | 1 478 315 | |||||||
Net earnings | — | — | — | 1 485 | 1 485 | — | |||||||
Foreign currency translation adjustment | — | — | 192 | — | 192 | — | |||||||
Actuarial loss on employee retirement benefit plans, net of income taxes of $20 | — | — | — | (60 | ) | (60 | ) | — | |||||
Total comprehensive income | — | — | 192 | 1 425 | 1 617 | — | |||||||
Issued under share option plans | 61 | (3 | ) | — | — | 58 | 1 740 | ||||||
Issued under dividend reinvestment plan | 6 | — | — | (6 | ) | — | — | ||||||
Purchase of common shares for cancellation (note 6) | (137 | ) | — | — | (247 | ) | (384 | ) | (10 454 | ) | |||
Change in liability for share purchase commitment | 40 | — | — | 67 | 107 | — | |||||||
Share-based compensation | — | 18 | — | — | 18 | — | |||||||
Dividends paid on common shares | — | — | — | (338 | ) | (338 | ) | — | |||||
At March 31, 2014 | 19 365 | 613 | 307 | 21 973 | 42 258 | 1 469 601 | |||||||
At December 31, 2014 | 19 311 | 609 | 504 | 21 179 | 41 603 | 1 444 119 | |||||||
Net loss | — | — | — | (341 | ) | (341 | ) | — | |||||
Foreign currency translation adjustment | — | — | 386 | — | 386 | — | |||||||
Actuarial loss on employee retirement benefit plans, net of income taxes of $10 | — | — | — | (30 | ) | (30 | ) | — | |||||
Total comprehensive income | — | — | 386 | (371 | ) | 15 | — | ||||||
Issued under share option plans | 44 | (5 | ) | — | — | 39 | 1 150 | ||||||
Issued under dividend reinvestment plan | 10 | — | — | (10 | ) | — | — | ||||||
Share-based compensation | — | 20 | — | — | 20 | — | |||||||
Dividends paid on common shares | — | — | — | (405 | ) | (405 | ) | — | |||||
At March 31, 2015 | 19 365 | 624 | 890 | 20 393 | 41 272 | 1 445 269 | |||||||
See accompanying notes to the interim consolidated financial statements.
40 SUNCOR ENERGY INC. 2015 FIRST QUARTER
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. REPORTING ENTITY AND DESCRIPTION OF THE BUSINESS
Suncor Energy Inc. (Suncor or the company) is an integrated energy company headquartered in Canada. Suncor's operations include oil sands development and upgrading, onshore and offshore oil and gas production, petroleum refining, and product marketing primarily under the Petro-Canada brand. The consolidated financial statements of the company comprise the company and its subsidiaries and the company's interests in associates and jointly controlled entities.
The address of the company's registered office is 150 – 6th Avenue S.W., Calgary, Alberta, Canada, T2P 3E3.
(a) Statement of Compliance
These condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), specifically International Accounting Standard (IAS) 34Interim Financial Reporting as issued by the International Accounting Standards Board. They are condensed as they do not include all of the information required for full annual financial statements, and they should be read in conjunction with the consolidated financial statements for the year ended December 31, 2014.
The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as at December 31, 2014.
Comparative figures have been reclassified to conform to the current year financial statement presentation for certain gas purchases consumed in the secondary upgrading process in the Oil Sands segment, which are now classified as Purchases rather than Operating, Selling and General, and shipping related charges in the Refining and Marketing segment, which are now classified as Transportation rather than Operating, Selling and General.
(b) Basis of Measurement
The consolidated financial statements are prepared on a historical cost basis except as detailed in the accounting policies disclosed in the company's consolidated financial statements for the year ended December 31, 2014.
(c) Functional Currency and Presentation Currency
These consolidated financial statements are presented in Canadian dollars, which is the company's functional currency.
(d) Use of Estimates and Judgment
The timely preparation of financial statements requires that management make estimates and assumptions and use judgment. Accordingly, actual results may differ from estimated amounts as future confirming events occur. Significant estimates and judgment used in the preparation of the financial statements are described in the company's consolidated financial statements for the year ended December 31, 2014.
(e) Income taxes
The company recognizes the impacts of income tax rate changes in earnings in the period the rate change is substantively enacted.
SUNCOR ENERGY INC. 2015 FIRST QUARTER 41
The company's operating segments are reported based on the nature of their products and services and management responsibility.
Intersegment sales of crude oil and natural gas are accounted for at market values and are included, for segmented reporting, in revenues of the segment making the transfer and expenses of the segment receiving the transfer. Intersegment amounts are eliminated on consolidation.
Three months ended March 31 | Oil Sands | Exploration and Production | Refining and Marketing | Corporate, Energy Trading and Eliminations | Total | |||||||||||||||||
($ millions) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenues and Other Income | ||||||||||||||||||||||
Gross revenues | 1 777 | 2 700 | 732 | 1 229 | 4 740 | 6 742 | 24 | 26 | 7 273 | 10 697 | ||||||||||||
Intersegment revenues | 507 | 1 190 | 37 | 212 | 22 | 18 | (566 | ) | (1 420 | ) | — | — | ||||||||||
Less: Royalties | (18 | ) | (192 | ) | (126 | ) | (163 | ) | — | — | — | — | (144 | ) | (355 | ) | ||||||
Operating revenues, net of royalties | 2 266 | 3 698 | 643 | 1 278 | 4 762 | 6 760 | (542 | ) | (1 394 | ) | 7 129 | 10 342 | ||||||||||
Other income | 58 | 9 | 116 | 2 | 17 | 7 | 66 | 117 | 257 | 135 | ||||||||||||
2 324 | 3 707 | 759 | 1 280 | 4 779 | 6 767 | (476 | ) | (1 277 | ) | 7 386 | 10 477 | |||||||||||
Expenses | ||||||||||||||||||||||
Purchases of crude oil and products | 70 | 82 | 1 | 152 | 3 296 | 4 823 | (595 | ) | (1 328 | ) | 2 772 | 3 729 | ||||||||||
Operating, selling and general | 1 372 | 1 501 | 131 | 153 | 560 | 609 | 232 | 193 | 2 295 | 2 456 | ||||||||||||
Transportation | 152 | 140 | 27 | 26 | 98 | 101 | (10 | ) | (10 | ) | 267 | 257 | ||||||||||
Depreciation, depletion, amortization and impairment | 773 | 669 | 365 | 299 | 163 | 152 | 32 | 20 | 1 333 | 1 140 | ||||||||||||
Exploration | 105 | 75 | 78 | 51 | — | — | — | — | 183 | 126 | ||||||||||||
Loss (gain) on disposal of assets | 8 | — | 1 | — | — | — | (7 | ) | — | 2 | — | |||||||||||
Financing expenses (income) | 39 | 28 | 38 | 9 | (7 | ) | 2 | 1 068 | 432 | 1 138 | 471 | |||||||||||
2 519 | 2 495 | 641 | 690 | 4 110 | 5 687 | 720 | (693 | ) | 7 990 | 8 179 | ||||||||||||
(Loss) Earnings before Income Taxes | (195 | ) | 1 212 | 118 | 590 | 669 | 1 080 | (1 196 | ) | (584 | ) | (604 | ) | 2 298 | ||||||||
Income Taxes | ||||||||||||||||||||||
Current | (4 | ) | 298 | 101 | 328 | 205 | 285 | (118 | ) | (100 | ) | 184 | 811 | |||||||||
Deferred | (45 | ) | 15 | (445 | ) | (32 | ) | (28 | ) | 8 | 71 | 11 | (447 | ) | 2 | |||||||
(49 | ) | 313 | (344 | ) | 296 | 177 | 293 | (47 | ) | (89 | ) | (263 | ) | 813 | ||||||||
Net (Loss) Earnings | (146 | ) | 899 | 462 | 294 | 492 | 787 | (1 149 | ) | (495 | ) | (341 | ) | 1 485 | ||||||||
Capital and Exploration Expenditures | 793 | 911 | 356 | 444 | 84 | 105 | 93 | 30 | 1 326 | 1 490 | ||||||||||||
42 SUNCOR ENERGY INC. 2015 FIRST QUARTER
Other income consists of the following:
Three months ended March 31 | |||||||
($ millions) | 2015 | 2014 | |||||
Energy trading activities | |||||||
Change in fair value of contracts | 7 | 112 | |||||
Gains on inventory valuation | 75 | 5 | |||||
Risk management activities(1) | 8 | (6 | ) | ||||
Investment and interest income | 18 | 27 | |||||
Renewable energy grants | 5 | 6 | |||||
Risk mitigation and insurance proceeds(2) | 104 | — | |||||
Change in value of pipeline commitments and other | 40 | (9 | ) | ||||
257 | 135 | ||||||
- (1)
- Includes fair value changes related to short-term derivative contracts in the Oil Sands and Refining and Marketing segments.
- (2)
- Includes business interruption proceeds for insurance on the Terra Nova assets in the Exploration and Production segment.
The following table summarizes the share-based compensation expense recorded for all plans within Operating, Selling and General expense.
Three months ended March 31 | |||||
($ millions) | 2015 | 2014 | |||
Equity-settled plans | 20 | 18 | |||
Cash-settled plans | 97 | 101 | |||
117 | 119 | ||||
Pursuant to Suncor's normal course issuer bid, Suncor repurchased 10.5 million common shares for total consideration of $384 million in the first quarter of 2014. Repurchases under the program were suspended on January 1, 2015 in response to the lower crude price environment.
The following table summarizes the share repurchase activities during the period:
Three months ended March 31 | ||||||
($ millions, except as noted) | 2015 | 2014 | ||||
Share repurchase activities(thousands of common shares) | ||||||
Shares repurchased | — | 10 454 | ||||
Amounts charged to | ||||||
Share capital | — | 137 | ||||
Retained earnings | — | 247 | ||||
Share repurchase cost | — | 384 | ||||
SUNCOR ENERGY INC. 2015 FIRST QUARTER 43
Under an automatic repurchase plan agreement with an independent broker, the company has recorded the following liability for share repurchases that may take place during its internal blackout period:
($ millions) | Mar 31 2015 | Mar 31 2014 | ||||
Amounts charged to | ||||||
Share capital | — | 68 | ||||
Retained earnings | — | 131 | ||||
Liability for share purchase commitment | — | 199 | ||||
Three months ended March 31 | |||||||
($ millions) | 2015 | 2014 | |||||
Interest on debt | 210 | 183 | |||||
Capitalized interest | (93 | ) | (108 | ) | |||
Interest expense | 117 | 75 | |||||
Interest on pension and other post-retirement benefits | 15 | 14 | |||||
Accretion | 52 | 51 | |||||
Foreign exchange loss on U.S. dollar denominated debt | 962 | 357 | |||||
Foreign exchange and other | (8 | ) | (26 | ) | |||
1 138 | 471 | ||||||
In March 2015, the company entered into a syndicated credit facility agreement for US$2 billion that matures in April 2019.
In the first quarter of 2015, the United Kingdom (U.K.) government enacted a decrease in the supplementary charge rate on oil and gas profits in the North Sea that decreased the statutory tax rate on Suncor's earnings in the U.K. from 62% to 50%. The company revalued its deferred income tax balances, resulting in a one-time decrease to deferred income tax liabilities of $406 million.
Pursuant to the previously disclosed 2013 proposal letter from the Canada Revenue Agency (CRA), the company received a Notice of Reassessment (NOR) from the CRA during the second quarter of 2014, regarding the income tax treatment of realized losses in 2007 on the settlement of certain derivative contracts. The total amount of the NOR, including tax, penalty and interest, was approximately $920 million. The company strongly disagrees with the CRA's position and continues to firmly believe it will be able to successfully defend its original filing position and will take the appropriate actions to resolve this matter. In addition to the above, the company has:
- •
- Received NORs related to the derivative contracts from the Provinces of Alberta, Ontario and Quebec for approximately $124 million, $100 million and $42 million, respectively;
- •
- Provided security to the CRA and the Provinces of Quebec and Ontario for approximately $610 million;
- •
- Filed Notices of Objection with the CRA and the Provinces of Alberta, Ontario and Quebec; and
- •
- Filed a Notice of Appeal with the Tax Court of Canada in November 2014 and is now pursuing its Appeal to that Court.
If the company is unsuccessful in defending its tax filing position, it could be subject to an earnings and cash impact of up to $1.2 billion.
44 SUNCOR ENERGY INC. 2015 FIRST QUARTER
Three months ended March 31 | ||||||
($ millions) | 2015 | 2014 | ||||
Net (loss) earnings | (341 | ) | 1 485 | |||
(millions of common shares) | ||||||
Weighted average number of common shares | 1 445 | 1 471 | ||||
Dilutive securities: | ||||||
Effect of share options | — | 2 | ||||
Weighted average number of diluted common shares | 1 445 | 1 473 | ||||
(dollars per common share) | ||||||
Basic (loss) earnings per share | (0.24 | ) | 1.01 | |||
Diluted (loss) earnings per share | (0.24 | ) | 1.01 | |||
Derivative Financial Instruments
(a) Non-Designated Derivative Financial Instruments
The following table presents the company's non-designated Energy Trading, Risk Management and Available for Sale derivatives measured at fair value as at March 31, 2015.
($ millions) | Energy Trading | Risk Management | Assets Available for Sale | Total | |||||||
Fair value outstanding at December 31, 2014 | 20 | 110 | 183 | 313 | |||||||
Fair value of contracts realized in earnings during the quarter | (37 | ) | (124 | ) | — | (161 | ) | ||||
Changes in fair value during the quarter (Note 4) | 7 | 8 | — | 15 | |||||||
Fair value outstanding at March 31, 2015 | (10 | ) | (6 | ) | 183 | 167 | |||||
Assets Available for Sale relate to the company's investment in Pioneer Energy. As a result of the third-party agreement to sell the company's share of its assets of Pioneer Energy, Suncor increased the fair value of its investment in Pioneer Energy by $98 million to $183 million in the third quarter of 2014 based on the agreed upon selling price.
(b) Fair Value Hierarchy
The following table presents the company's financial instruments measured at fair value for each hierarchy level as at March 31, 2015.
($ millions) | Level 1 | Level 2 | Level 3 | Total Fair Value | |||||||
Accounts receivable | 15 | 28 | — | 43 | |||||||
Accounts payable | (19 | ) | (40 | ) | — | (59 | ) | ||||
Other assets | — | 183 | — | 183 | |||||||
(4 | ) | 171 | — | 167 | |||||||
SUNCOR ENERGY INC. 2015 FIRST QUARTER 45
During the first quarter of 2015, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into and out of Level 3 fair value measurements.
The company uses forward starting interest rate swaps to mitigate its exposure to the effect of future interest rate movements on future debt issuances. As at March 31, 2015, the company had executed US$400 million in forward swaps.
Non-Derivative Financial Instruments
At March 31, 2015, the carrying value of fixed-term debt accounted for under amortized cost was $12.4 billion (December 31, 2014 – $11.5 billion) and the fair value was $14.9 billion (December 31, 2014 – $13.5 billion). The estimated fair value of long-term debt is based on pricing sourced from market data.
During the third quarter of 2014, the company announced that, along with The Pioneer Group Inc., it had reached an agreement to sell the assets of Pioneer Energy, including retail gas stations in Ontario and Manitoba. The company, as a 50% owner of Pioneer Energy, will receive $182.5 million before closing adjustments for its share of the assets and liabilities. The transaction is expected to close in the second quarter of 2015 and is subject to closing conditions including regulatory approval under the Competition Act. An unrealized fair value adjustment resulted in an $85 million after-tax increase to Other Comprehensive Income during the third quarter of 2014.
During the first quarter of 2015, there was a net increase in provisions of $411 million, primarily due to a $382 million increase in the decommissioning and restoration provision as a result of a decrease in the credit-adjusted risk-free interest rate to 3.43% (December 31, 2014 – 3.93%).
46 SUNCOR ENERGY INC. 2015 FIRST QUARTER
EXHIBIT 99.3
1. REPORTING ENTITY AND DESCRIPTION OF THE BUSINESS
2. BASIS OF PREPARATION
3. SEGMENTED INFORMATION
4. OTHER INCOME
5. SHARE-BASED COMPENSATION
6. NORMAL COURSE ISSUER BID
7. FINANCING EXPENSES
8. INCOME TAXES
9. EARNINGS PER COMMON SHARE
10. FINANCIAL INSTRUMENTS
11. PIONEER DISPOSITION
12. PROVISIONS