EX-99.3 4 a2235327zex-99_3.htm EX-99.3
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EXHIBIT 99.3

Unaudited Consolidated Financial Statements for the first quarter ended March 31, 2018

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

  Three months ended
March 31		    

($ millions)

   2018   2017    
​ ​ ​ ​ ​ ​ ​

      (restated – note 3)    

Revenues and Other Income

            
​

Operating revenues, net of royalties (note 4)

   8 807   7 787    
​

Other (loss) income (note 5)

   (57 ) 25    
​ ​ ​ ​ ​ ​ ​

  8 750   7 812    
​ ​ ​ ​ ​ ​ ​

Expenses

            
​

Purchases of crude oil and products

   2 847   2 478    
​

Operating, selling and general

   2 620   2 292    
​

Transportation

   274   269    
​

Depreciation, depletion, amortization and impairment

   1 424   1 422    
​

Exploration

   32   52    
​

Gain on disposal of assets (notes 13, 14 and 18)

   (163 ) (548 )  
​

Financing expenses (note 7)

   562   36    
​ ​ ​ ​ ​ ​ ​

  7 596   6 001    
​ ​ ​ ​ ​ ​ ​

Earnings before Income Taxes

   1 154   1 811    
​ ​ ​ ​ ​ ​ ​

Income Tax Expense (Recovery)

  
 		  
 		  
 
​

Current

   336   471    
​

Deferred

   29   (12 )  
​ ​ ​ ​ ​ ​ ​

  365   459    
​ ​ ​ ​ ​ ​ ​

Net Earnings

   789   1 352    
​ ​ ​ ​ ​ ​ ​

Other Comprehensive Income

  
 		  
 		  
 
​

Items That May be Subsequently Reclassified to Earnings:

            
​

Foreign currency translation adjustment

   129   (28 )  
​

Items That Will Not be Reclassified to Earnings:

            
​

Actuarial (loss) gain on employee retirement benefit plans, net of income taxes

   (10 ) 29    
​ ​ ​ ​ ​ ​ ​

Other Comprehensive Income

   119   1    
​ ​ ​ ​ ​ ​ ​

Total Comprehensive Income

  
908		  
1 353		  
 
​ ​ ​ ​ ​ ​ ​

Per Common Share (dollars) (note 9)

  
 		  
 		  
 
​

Net earnings – basic and diluted

   0.48   0.81    
​

Cash dividends

   0.36   0.32    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the interim consolidated financial statements.

  
 		  
 		  
 
​ 42  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

CONSOLIDATED BALANCE SHEETS
(unaudited)

($ millions)

   March 31
2018		   December 31
2017		    

​

​ ​ ​ ​ ​ ​

Assets

            
​

Current assets

            
​

Cash and cash equivalents

   2 083   2 672    
​

Accounts receivable

   3 819   3 281    
​

Inventories

   3 830   3 468    
​

Income taxes receivable

   167   156    
​ ​ ​ ​ ​ ​ ​

Total current assets

   9 899   9 577    
​

Property, plant and equipment, net

   74 254   73 493    
​

Exploration and evaluation

   2 241   2 052    
​

Other assets (note 18)

   1 675   1 211    
​

Goodwill and other intangible assets

   3 060   3 061    
​

Deferred income taxes

   148   100    
​ ​ ​ ​ ​ ​ ​

Total assets

   91 277   89 494    
​ ​ ​ ​ ​ ​ ​

Liabilities and Shareholders' Equity

  
 		  
 		  
 
​

Current liabilities

            
​

Short-term debt

   3 973   2 136    
​

Current portion of long-term debt

   63   71    
​

Accounts payable and accrued liabilities

   6 075   6 203    
​

Current portion of provisions

   707   722    
​

Income taxes payable

   274   425    
​ ​ ​ ​ ​ ​ ​

Total current liabilities

   11 092   9 557    
​

Long-term debt

   13 650   13 372    
​

Other long-term liabilities (notes 11 and 15)

   2 355   2 412    
​

Provisions (note 12)

   7 086   7 237    
​

Deferred income taxes

   11 611   11 533    
​

Equity

   45 483   45 383    
​ ​ ​ ​ ​ ​ ​

Total liabilities and shareholders' equity

   91 277   89 494    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the interim consolidated financial statements.

  
 		  
 		  
 
​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  43

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

  Three months ended
March 31		    

($ millions)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Operating Activities

            
​

Net Earnings

   789   1 352    
​

Adjustments for:

            
​

Depreciation, depletion, amortization and impairment

   1 424   1 422    
​

Deferred income taxes

   29   (12 )  
​

Accretion

   65   61    
​

Unrealized foreign exchange loss (gain) on U.S. dollar denominated debt

   373   (109 )  
​

Change in fair value of financial instruments and trading inventory

   (51 ) 10    
​

Gain on disposal of assets (notes 13, 14 and 18)

   (163 ) (420 )  
​

Share-based compensation

   (224 ) (250 )  
​

Exploration

   —   41    
​

Settlement of decommissioning and restoration liabilities

   (169 ) (120 )  
​

Other

   91   49    
​

Increase in non-cash working capital

   (1 440 ) (396 )  
​ ​ ​ ​ ​ ​ ​

Cash flow provided by operating activities

   724   1 628    
​ ​ ​ ​ ​ ​ ​

Investing Activities

            
​

Capital and exploration expenditures

   (1 291 ) (1 380 )  
​

Acquisitions (notes 16 and 17)

   (1 068 ) —    
​

Proceeds from disposal of assets (notes 13 and 14)

   —   1 396    
​

Other investments (note 18)

   (57 ) —    
​

Decrease (increase) in non-cash working capital

   243   (61 )  
​ ​ ​ ​ ​ ​ ​

Cash flow used in investing activities

   (2 173 ) (45 )  
​ ​ ​ ​ ​ ​ ​

Financing Activities

            
​

Net change in short-term debt

   1 745   (511 )  
​

Net change in long-term debt

   (17 ) (14 )  
​

Issuance of common shares under share option plans

   69   44    
​

Purchase of common shares (note 10)

   (389 ) —    
​

Dividends paid on common shares

   (590 ) (534 )  
​ ​ ​ ​ ​ ​ ​

Cash flow provided by (used in) financing activities

   818   (1 015 )  
​ ​ ​ ​ ​ ​ ​

(Decrease) Increase in Cash and Cash Equivalents

   (631 ) 568    
​

Effect of foreign exchange on cash and cash equivalents

   42   (7 )  
​

Cash and cash equivalents at beginning of year

   2 672   3 016    
​ ​ ​ ​ ​ ​ ​

Cash and Cash Equivalents at End of Year

   2 083   3 577    
​ ​ ​ ​ ​ ​ ​

Supplementary Cash Flow Information

            
​

Interest paid

   107   115    
​

Income taxes paid

   617   121    

​

​ ​ ​ ​ ​ ​

See accompanying notes to the interim consolidated financial statements.

  
 		  
 		  
 
​ 44  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)

($ millions)

   Share
Capital		   Contributed
Surplus		   Accumulated
Other
Comprehensive
Income		   Retained
Earnings		   Total   Number
of
Common
Shares
(thousands)		    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At December 31, 2016

   26 942   588   1 007   16 093   44 630   1 667 914    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net earnings

   —   —   —   1 352   1 352   —    
​ ​ ​

Foreign currency translation adjustment

   —   —   (28 ) —   (28 ) —    
​ ​ ​

Actuarial gain on employee retirement benefit plans, net of income taxes of $11

   —   —   —   29   29   —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total comprehensive (loss) income

   —   —   (28 ) 1 381   1 353   —    
​ ​ ​

Issued under share option plans

   55   (8 ) —   —   47   1 301    
​ ​ ​

Share-based compensation

   —   20   —   —   20   —    
​ ​ ​

Dividends paid on common shares

   —   —   —   (534 ) (534 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At March 31, 2017

   26 997   600   979   16 940   45 516   1 669 215    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At December 31, 2017

   26 606   567   809   17 401   45 383   1 640 983    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net Earnings

   —   —   —   789   789   —    
​ ​ ​

Foreign currency translation adjustment

   —   —   129   —   129   —    
​ ​ ​

Actuarial loss on employee retirement benefit plans, net of income taxes of $4

   —   —   —   (10 ) (10 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total comprehensive income

   —   —   129   779   908   —    
​ ​ ​

Issued under share option plans

   91   (21 ) —   —   70   1 832    
​ ​ ​

Purchase of common shares for cancellation (note 10)

   (145 ) —   —   (244 ) (389 ) (8 999 )  
​ ​ ​

Change in liability for share purchase commitment (note 10)

   25   —   —   54   79   —    
​ ​ ​

Share-based compensation

   —   22   —   —   22   —    
​ ​ ​

Dividends paid on common shares

   —   —   —   (590 ) (590 ) —    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

At March 31, 2018

   26 577   568   938   17 400   45 483   1 633 816    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

See accompanying notes to the interim consolidated financial statements.

  
 		  
 		  
 		  
 
​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  45

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 joint arrangement entities.

The address of the company's registered office is 150 – 6th Avenue S.W., Calgary, Alberta, Canada, T2P 3E3.

2. BASIS OF PREPARATION

(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) 34 Interim 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, 2017.

The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as at May 1, 2018.

(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, 2017, except for the adoption of the new accounting pronouncements described in note 3.

(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, Assumptions and Judgments

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, 2017.

(e) Income taxes

The company recognizes the impacts of income tax rate changes in earnings in the period the rate change is substantively enacted.

3. ADOPTION OF NEW IFRS STANDARDS

Impact of the application of IFRS 9

Effective January 1, 2018, the company adopted IFRS 9 Financial Instruments (IFRS 9) which replaces the multiple classification and measurement models for financial assets under IAS 39 Financial Instruments (IAS 39) with a new model that has two measurement categories: amortized cost and fair value through profit or loss (FVTPL). This determination is made at initial recognition. For financial liabilities, the new standard retains most of the IAS 39 requirements; however, the main change arises in cases where the company chooses to designate a financial liability as FVTPL. In these situations, the portion of the fair value change related to the company's own credit risk is recognized in other comprehensive income rather than net earnings. As a result of adopting IFRS 9, the company's financial assets classified as loans and receivables at December 31, 2017 have been reclassified to financial assets at amortized cost; however, there is no impact to the measurement of these financial assets. There were no changes to the classifications of the company's financial liabilities. The classification and measurement guidance was adopted retrospectively in accordance with the transitional provisions of IFRS 9.

The company also adopted the new hedge accounting guidance in IFRS 9. The new hedge accounting guidance replaces strict quantitative tests of effectiveness with less restrictive assessments of how well the hedging instrument accomplishes the

​ 46  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

company's risk management objectives for financial and non-financial risk exposures. IFRS 9 also allows the company to hedge risk components of non-financial items which meet certain measurability or identifiable characteristics. The company does not apply hedge accounting to any of its derivative instruments at this time.

After adoption of IFRS 9, the company's accounting policies are substantially the same as at December 31, 2017 and there is no impact on net earnings, except for the change in financial asset categories as discussed above.

Impact of the application of IFRS 15

On January 1, 2018, the company adopted IFRS 15 Revenue from Contracts with Customers (IFRS 15) using the retrospective method, which sets out guidelines for the recognition of revenue.

IFRS 15 replaces IAS 18 Revenue and presents a new single model for recognition of revenue from contracts with customers. The model features a contract-based five-step analysis of transactions to determine the nature of an entity's obligation to perform and whether, how much, and when revenue is recognized.

Under IFRS 15, the revenue from the sale of commodities and other operating revenue the company earns represent contractual arrangements with customers. The company recognizes revenue when title of the product is transferred to the buyer and collection is reasonably assured in accordance with specified contract terms. All operating revenue are generally earned at a point in time and are based on the consideration that the company expects to receive for the transfer of the goods to the customers.

The company has reviewed its sources of revenue and major contracts with customers using the guidance found in IFRS 15 and determined there are no material changes to the timing and measurement of the company's revenue in the reporting period, as compared to the provisions of the previous standard. In accordance with the new standard, the company assessed its principal versus agent requirements and the impact was a decrease of $31 million of revenue, with a corresponding decrease to Operating, Selling and General expense of $14 million, and a decrease in transportation expense of $17 million for the three months ended March 31, 2017, resulting in no impact on the company's consolidated net earnings.

Adjustments to Consolidated Statements of Comprehensive Income

($ millions, decrease)

   For the
three months ended
March 31 2017
IFRS 15		    

​

​ ​ ​ ​

Revenues and Other Income

        
​

Operating revenues, net of royalties

   (31 )  
​

Expenses

        
​

Operating, selling and general

   (14 )  
​

Transportation

   (17 )  
​ ​ ​ ​ ​

Net Earnings

   —    
​ ​ ​ ​ ​

Total Comprehensive Income

   —    

​

​ ​ ​ ​
​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  47

4. SEGMENTED INFORMATION

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)     2018     2017     2018     2017     2018     2017     2018     2017     2018     2017    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
            (restated –
note 3)
 		                      (restated –
note 3)
 		          (restated –
note 3)
 		          (restated –
note 3)
 		   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Revenues and Other Income

                                                          
​

Gross revenues

     2 571     2 455     1 017     920     5 417     4 574     9     22     9 014     7 971    
​

Intersegment revenues

     1 028     868     —     —     9     6     (1 037 )   (874 )   —     —    
​

Less: Royalties

     (46 )   (61 )   (161 )   (123 )   —     —     —     —     (207 )   (184 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Operating revenues, net of royalties

     3 553     3 262     856     797     5 426     4 580     (1 028 )   (852 )   8 807     7 787    
​

Other (loss) income

     (3 )   14     (52 )   (33 )   (7 )   19     5     25     (57 )   25    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    3 550     3 276     804     764     5 419     4 599     (1 023 )   (827 )   8 750     7 812    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Expenses

                                                                
​

Purchases of crude oil and products

     270     116     —     —     3 653     3 252     (1 076 )   (890 )   2 847     2 478    
​

Operating, selling and general

     1 872     1 553     110     101     480     503     158     135     2 620     2 292    
​

Transportation

     226     222     24     23     30     28     (6 )   (4 )   274     269    
​

Depreciation, depletion, amortization and impairment

     974     941     279     284     154     160     17     37     1 424     1 422    
​

Exploration

     23     2     9     50     —     —     —     —     32     52    
​

Gain on disposal of assets

     (1 )   (1 )   (162 )   —     —     (450 )   —     (97 )   (163 )   (548 )  
​

Financing expenses (income)

     77     33     1     17     3     9     481     (23 )   562     36    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    3 441     2 866     261     475     4 320     3 502     (426 )   (842 )   7 596     6 001    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings (Loss) before Income Taxes

     109     410     543     289     1 099     1 097     (597 )   15     1 154     1 811    
​

Income Tax Expense (Recovery)

                                                                
​

Current

     (30 )   99     203     176     270     277     (107 )   (81 )   336     471    
​

Deferred

     57     9     (55 )   (59 )   23     (9 )   4     47     29     (12 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

    27     108     148     117     293     268     (103 )   (34 )   365     459    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net Earnings (Loss)

     82     302     395     172     806     829     (494 )   49     789     1 352    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Capital and Exploration Expenditures

     992     1 059     165     227     117     92     17     2     1 291     1 380    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ 48  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

Disaggregation of Revenue from Contracts with Customers and Intersegment Revenue

In the first quarter of 2018, the company adopted IFRS 15 Revenue from Contracts with Customers as detailed in Note 3, using the retrospective approach.

The company derives revenue from the transfer of goods mainly at a point in time in the following major commodities, revenue streams and geographical regions:

For the three months ended March 31

  2018
   2017
 		   

($ millions)

   North America   International   Total   North America   International   Total    

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Oil Sands

                            
​

SCO and diesel

   2 950   —   2 950   2 923   —   2 923    
​

Bitumen

   649   —   649   400   —   400    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  3 599   —   3 599   3 323   —   3 323    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Exploration and Production

                            
​

Crude oil and natural gas liquids

   481   529   1 010   380   531   911    
​

Natural gas

   3   4   7   3   6   9    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  484   533   1 017   383   537   920    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Refining and Marketing

                            
​

Gasoline

   2 388   —   2 388   1 971   —   1 971    
​

Distillate

   2 290   —   2 290   1 828   —   1 828    
​

Other

   748   —   748   781   —   781    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  5 426   —   5 426   4 580   —   4 580    
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Corporate, Energy Trading and Eliminations

                            
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  (1 028 ) —   (1 028 ) (852 ) —   (852 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total Revenue from Contracts with Customers

   8 481   533   9 014   7 434   537   7 971    

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

5. OTHER (LOSS) INCOME

Other (loss) income consists of the following:

  Three months ended
March 31		    

($ millions)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Energy trading activities

            
​

Unrealized (losses) gains recognized in earnings during the period

   (14 ) 19    
​

Gains (losses) on inventory valuation

   16   (37 )  
​

Risk management activities(1)

   (25 ) 56    
​

Investment and interest income

   9   21    
​

Change in value of pipeline commitments and other(2)

   (43 ) (34 )  
​ ​ ​ ​ ​ ​ ​

  (57 ) 25    

​

​ ​ ​ ​ ​ ​
(1)
Includes fair value changes related to short-term derivative contracts in the Oil Sands and Refining and Marketing segments and long-term forward-starting interest rate swaps in the Corporate segment.

(2)
Includes a $57 million ($12 million after-tax) increase in the reserves redetermination provision related to an interest in a Norwegian asset that Suncor previously owned (2017 – $32 million; $7 million after-tax).
​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  49

6. SHARE-BASED COMPENSATION

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)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Equity-settled plans

   22   24    
​

Cash-settled plans

   89   74    
​ ​ ​ ​ ​ ​ ​

  111   98    

​

​ ​ ​ ​ ​ ​

7. FINANCING EXPENSES

   Three months ended
March 31		    

($ millions)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Interest on debt

   209   252    
​

Capitalized interest

   (77 ) (174 )  
​ ​ ​ ​ ​ ​ ​

Interest expense

   132   78    
​

Interest on partnership liability (note 15)

   14   —    
​

Interest on pension and other post-retirement benefits

   14   15    
​

Accretion

   65   61    
​

Foreign exchange loss (gain) on U.S. dollar denominated debt

   373   (109 )  
​

Foreign exchange and other

   (36 ) (9 )  
​ ​ ​ ​ ​ ​ ​

  562   36    

​

​ ​ ​ ​ ​ ​

8. INCOME TAXES

In the fourth quarter of 2017, the U.S. government enacted a decrease in the federal corporate tax rate from 35% to 21% effective January 1, 2018. As a result, the company revalued its deferred income tax balances, resulting in a deferred income tax recovery of $124 million recognized in the fourth quarter of 2017.

In the fourth quarter of 2017, the Government of British Columbia substantively enacted an increase to the provincial corporate income tax rate from 11% to 12%. As a result, the company revalued its deferred income tax balances, resulting in a deferred income tax expense of $18 million.

​ 50  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

9. EARNINGS PER COMMON SHARE

   Three months ended
March 31		    

($ millions)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Net earnings

   789   1 352    
​

Dilutive impact of accounting for awards as equity-settled(1)

   —   (4 )  
​ ​ ​ ​ ​ ​ ​

Net earnings – diluted

   789   1 348    

​

​ ​ ​ ​ ​ ​

(millions of common shares)

  
 		  
 		  
 

​

​ ​ ​ ​ ​ ​

Weighted average number of common shares

   1 639   1 669    
​

Dilutive securities:

            
​

Effect of share options

   5   4    
​ ​ ​ ​ ​ ​ ​

Weighted average number of diluted common shares

   1 644   1 673    

​

​ ​ ​ ​ ​ ​

(dollars per common share)

  
 		  
 		  
 

​

​ ​ ​ ​ ​ ​

Basic and diluted earnings per share

   0.48   0.81    

​

​ ​ ​ ​ ​ ​
(1)
Cash payment alternatives are accounted for as cash-settled plans. As these awards can be exchanged for common shares of the company, they are considered potentially dilutive and are included in the calculation of the company's diluted net earnings per share if they have a dilutive impact in the period. Accounting for these awards as equity-settled was determined to have a dilutive impact for the three month ended March 31, 2017.

10. NORMAL COURSE ISSUER BID

On April 26, 2017, the company announced its intention to commence a normal course issuer bid (the 2017 NCIB) to repurchase shares through the facilities of the Toronto Stock Exchange, New York Stock Exchange and/or alternative trading platforms. Pursuant to the 2017 NCIB, the company was permitted to purchase for cancellation up to approximately $2.0 billion worth of its common shares between May 2, 2017 and May 1, 2018. During the first quarter of 2018, the company repurchased 9.0 million common shares under the 2017 NCIB at an average price of $43.28 per share, for a total repurchase cost of $389 million.

The following table summarizes the share repurchase activities during the period:

  Three months ended
March 31		    

($ millions, except as noted)

   2018   2017    

​

​ ​ ​ ​ ​ ​

Share repurchase activities (thousands of common shares)

            
​

Shares repurchased

   8 999   —    
​ ​ ​ ​ ​ ​ ​

Amounts charged to

            
​

Share capital

   145   —    
​

Retained earnings

   244   —    
​ ​ ​ ​ ​ ​ ​

Share repurchase cost

   389   —    

​

​ ​ ​ ​ ​ ​

Under an automatic repurchase plan agreement with an independent broker, the company recorded the following liability for share repurchases that could have taken place during its internal blackout period:

($ millions)

   March 31
2018		   December 31
2017		    

​

​ ​ ​ ​ ​ ​

Amounts charged to

            
​

Share capital

   72   97    
​

Retained earnings

   126   180    
​ ​ ​ ​ ​ ​ ​

Liability for share purchase commitment

   198   277    

​

​ ​ ​ ​ ​ ​
​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  51

11. FINANCIAL INSTRUMENTS

Derivative Financial Instruments

(a) Non-Designated Derivative Financial Instruments

The following table presents the company's non-designated Energy Trading and Risk Management derivatives measured at fair value as at March 31, 2018:

($ millions)

   Energy
Trading		   Risk
Management		   Total    

​

​ ​ ​ ​ ​ ​ ​ ​

Fair value outstanding at December 31, 2017

   (85 ) (20 ) (105 )  
​

Cash Settlements – paid during the year

   69   4   73    
​

Unrealized losses recognized in earnings during the year (note 5)

   (14 ) (25 ) (39 )  
​ ​ ​ ​ ​ ​ ​ ​ ​

Fair value outstanding at March 31, 2018

   (30 ) (41 ) (71 )  

​

​ ​ ​ ​ ​ ​ ​ ​

(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, 2018:

($ millions)

   Level 1   Level 2   Level 3   Total Fair
Value		    

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Accounts receivable

   13   96   —   109    
​

Accounts payable

   (68 ) (112 ) —   (180 )  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

  (55 ) (16 ) —   (71 )  

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

During the first quarter of 2018, 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, 2018, the company had no outstanding forward-starting interest rate swaps.

The company also uses foreign exchange forwards to mitigate its exposure to the effect of future foreign exchange movements on future debt issuances or settlements. As at March 31, 2018, the company had $39 million in outstanding foreign exchange forwards.

Non-Derivative Financial Instruments

At March 31, 2018, the carrying value of fixed-term debt accounted for under amortized cost was $12.4 billion (December 31, 2017 – $12.1 billion) and the fair value was $14.6 billion (December 31, 2017 – $14.7 billion). The estimated fair value of long-term debt is based on pricing sourced from market data.

Suncor entered into a partnership with Fort McKay First Nation (FMFN) and Mikisew Cree First Nation (MCFN) in 2017 where FMFN and MCFN acquired a combined 49% partnership interest in the East Tank Farm Development (ETFD). The partnership liability is recorded at amortized cost using the effective interest method. At March 31, 2018, the carrying value of the partnership liability accounted for under amortized cost was $483 million (December 31, 2017 – $483 million), with interest on the partnership liability offsetting distributions in the period.

12. PROVISIONS

Suncor's decommissioning and restoration provision decreased by $210 million for the three months ended March 31, 2018. An increase in the credit-adjusted risk-free interest rate to 3.90% (December 31, 2017 – 3.70%) and the disposal of the company's mineral landholdings in northeast British Columbia resulted in a decrease to the liability, partially offset by the acquisition of Mocal Energy Limited's 5% interest in Syncrude.

13. SALE OF LUBRICANTS BUSINESS

On February 1, 2017, the company completed the previously announced sale of its lubricants business for proceeds of $1.1 billion before closing adjustments and other closing costs. The sale of this business resulted in an after-tax gain of

​ 52  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​

$354 million, including a current tax expense of $101 million and a deferred tax recovery of $11 million, in the Refining and Marketing segment.

14. SALE OF CEDAR POINT

The company sold its interest in the Cedar Point wind facility in southwest Ontario for proceeds of $291 million before closing adjustments and other closing costs, with an effective date of January 1, 2017. The disposition resulted in an after-tax gain of $83 million, including a current tax expense of $29 million and a deferred tax recovery of $15 million, in the Corporate, Energy Trading and Eliminations segment.

15. EAST TANK FARM DEVELOPMENT (ETFD) PARTNERSHIP

The ETFD consists of bitumen storage, blending and cooling facilities and connectivity to third-party pipelines and began operations on July 14, 2017. ETFD is solely responsible for moving the product of the Fort Hills joint operation to market. On November 22, 2017, the company completed the previously announced disposition of a 49% ownership interest in the ETFD to the Fort McKay First Nation and the Mikisew Cree First Nation for gross proceeds of $503 million. Suncor retained a 51% ownership interest and remains as operator of the assets. The assets are held by a newly formed limited partnership, which has a non-discretionary obligation to distribute the variable monthly residual cash in ETFD to the partners. Therefore, the company has recorded a liability within Other Long-Term Liabilities to reflect the 49% non-controlling interest of the third parties. As a result, the company will continue to consolidate 100% of the results of the Partnership.

16. FORT HILLS

On December 21, 2017, the Fort Hills partners resolved their commercial dispute and reached an agreement in which Suncor acquired an additional 2.26% interest in the project for consideration of $308 million. Teck Resources Limited (Teck) also acquired an additional 0.89% interest in the project as a result of the agreement.

During the first quarter of 2018, Suncor acquired an additional 1.05% interest in the Fort Hills project for consideration of $145 million. The additional interest is an outcome of the commercial dispute settlement agreement reached among the Fort Hills partners in December 2017. Teck also acquired an additional 0.42% in the project. Suncor's share in the project has increased to 54.11% and Teck's has increased to 21.31% with Total E&P Canada Ltd's. (Total) share decreasing to 24.58%. Working interests in the Fort Hills project may continue to be adjusted in accordance with the terms of the agreement.

17. ACQUISITION OF ADDITIONAL OWNERSHIP INTEREST IN THE SYNCRUDE PROJECT

On February 23, 2018, Suncor completed the purchase of an additional 5% working interest in the Syncrude project from Mocal Energy Limited for $923 million, subject to final closing adjustments. Suncor's share in the Syncrude project has increased to 58.74%.

​ ​ ​ 2018 FIRST QUARTER   Suncor Energy Inc.  53

The acquisition has been accounted for as a business combination using the acquisition method. The preliminary purchase price allocation is based on management's best estimates of fair values of Syncrude's assets and liabilities as at February 23, 2018. Adjustments to estimates may be required.

($ millions)

        

​

​ ​ ​ ​

Accounts receivable

   2    
​

Inventory

   15    
​

Property, plant and equipment

   998    
​

Exploration and evaluation

   163    
​ ​ ​ ​ ​

Total assets acquired

   1 178    
​ ​ ​ ​ ​

Accounts payable and accrued liabilities

   (51 )  
​

Employee future benefits

   (33 )  
​

Decommissioning provision

   (169 )  
​

Deferred income taxes

   (2 )  
​ ​ ​ ​ ​

Total liabilities assumed

   (255 )  
​ ​ ​ ​ ​

Net assets acquired

   923    

​

​ ​ ​ ​

The fair values of accounts receivable and accounts payable approximate their carrying values due to the short-term maturity of the instruments. The fair value of materials and supplies inventory approximates book value due to short-term turnover rates. The fair values of property, plant and equipment, and the decommissioning provision were determined using an expected future cash flow approach. Key assumptions used in the calculations were discount rates, future commodity prices and costs, timing of development activities, projections of oil reserves, and cost estimates to abandon and reclaim the mine and facilities.

The additional interest in Syncrude contributed $29 million to gross revenues and a $4 million net loss to consolidated net earnings from the acquisition date to March 31, 2018.

Had the acquisition occurred on January 1, 2018, the additional interest would have contributed $64 million to gross revenues and $4 million to consolidated net earnings, which would have resulted in gross revenues of $9.1 billion and consolidated net earnings of $793 million for the three months ended March 31, 2018.

18. OTHER TRANSACTIONS

On March 23, 2018, Suncor completed an exchange of its northeast British Columbia mineral land holdings, including associated production, and consideration of $52 million for a 37% equity interest in Canbriam Energy Inc. (a private natural gas company). The investment was recorded at $277 million and is accounted for using the equity method of accounting. As a result of the asset transfer, Suncor recognized a gain of $162 million in the Exploration and Production segment after eliminating a portion of the gain against the investment value.

On February 12, 2018, Suncor reached an agreement with Faroe Petroleum to purchase a 17.5% interest in the Fenja project in Norway for US$54.5 million (approximately $68 million). This project was sanctioned in December 2017 and the transaction is expected to close in the second quarter of 2018, subject to customary closing conditions.

19. SUBSEQUENT EVENTS

The Toronto Stock Exchange (TSX) accepted a notice filed by the company of its intention to renew its normal course issuer bid to continue to purchase shares under its previously announced buyback program through the facilities of the TSX, New York Stock Exchange and/or alternative trading platforms. The notice provides that the company may purchase for cancellation up to approximately $2.15 billion worth of its common shares beginning May 4, 2018 and ending May 3, 2019.

​ 54  2018 FIRST QUARTER   Suncor Energy Inc. ​ ​



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EXHIBIT 99.3